Customer Value-based Management: Competitive Implications

Many …rms today quantify the value of individual customers and serve them di¤erentially; providing better priviliges, discounts or other inducements to high value customers. We refer to this practice as Customer Value-based Management (CVM). Previous research in this area and popular press recommend numerous prescriptions that are research-based and intuitively sound. However, …rms that have adopted CVM have often met with mixed results. For example, only a third of leading U.S. retail banks indicate that they have gained a competitive advantage from CVM. One possible factor that might account for the di¤erence between actual outcomes and anticipated results could be that real …rms implement CVM in a competitive environment. Our objective is to study CVM explicitly in a competitive setting. Our results suggest that while some recommendations and prescriptions from past research continue to hold in a competitive environment, some others do not. For example, …ring low-value customers decreases …rm pro…ts, and even improving their value may prove counter-productive. Also as the cost of CVM technology decreases, …rms adopting CVM in a competitive environment do not necessarily bene…t. (Keywords: Competitive Games; Customer Relationship Management) Customer Value-based Management: Competitive Implications Many …rms today quantify the value of individual customers and serve them di¤erentially; providing better privileges, discounts or other inducements to high value customers. We refer to this practice as Customer Value-based Management (CVM). Previous research in this area and popular press o¤er numerous prescriptions that are research-based and intuitively sound. However, …rms that have adopted CVM have often met with mixed results. For example, only a third of leading U.S. retail banks indicate that they have gained a competitive advantage from CVM. One possible factor that might account for the di¤erence between actual outcomes and anticipated results could be that real …rms implement CVM in a competitive environment. Our objective is to study CVM explicitly in a competitive setting. Our results suggest that while some recommendations and prescriptions from past research continue to hold in a competitive environment, some others do not. For example, …ring low-value customers decreases …rm pro…ts, and even improving their value may prove counter-productive. Also as the cost of CVM technology decreases, …rms adopting CVM in a competitive environment do not necessarily bene…t. (