Edited by Shankar Ganesan
Chapter 1: Enhancing Financial Performance: The Power of Customer Metrics
V. Kumar and Nita Umashankar* INTRODUCTION The Need For Customer Metrics One of the greatest challenges marketers face today is the marginalization of the marketing function within the firm (Nath and Mahajan, 2008). Marketing practitioners are under increased pressure to be more accountable and show how marketing expenditures improve firm performance and shareholder value (Doyle, 2000; Kumar and Shah, 2009). In response, academics and practitioners have devised several marketing metrics intended to increase marketing’s accountability within the firm and justify spending firm resources on marketing initiatives (Rust et al., 2004a). Alongside this premise, the literature evidences a growing emphasis on firm valuation in terms of customers, instead of products, leading to rich customer-level metrics. The most insightful customer metrics are those that help firms measure marketing productivity, allow managers to develop effective forward-looking marketing strategies, predict a customer’s future value to the firm, and predict the firm’s future financial performance. For instance, Progressive Insurance is a good example of a company that has ensured a competitive advantage by utilizing predictive metrics. Using complex customer segmentation and evaluative risk measurement models, Progressive has been able to provide insurance to traditionally ‘high-risk drivers’ while ensuring profitability from this customer segment. Since many insurance companies will not find the high-risk drivers segment attractive, Progressive’s offerings to this segment has provided them with a significant first-mover advantage. Competitors such as Allstate have started to embrace such an approach. Another example of using predictive metrics as a means of gaining competitive advantage is that of...
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