The Balanced Scorecard: Translating Strategy Into Action by Robert S. Kaplan, David P. Norton
Authors: Robert S. Kaplan, David P. Norton
Tags: Non-Fiction, Business
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customer’s demand. Or, if the customer or the nature of the demands is particularly important to the organization, and repricing is not a viable option, the business unit still receives a signal from the ABC system about unprofitable relationships. Such a signal enables it to see where key processes that deliver the product or service to the customer can be reengineered or redesigned so that customers’ demands can be met and the company can still be profitable.
The customer profitability measure may reveal that certain targeted customers are unprofitable. This is particularly likely to occur with newly acquired customers, where the considerable acquisition effort has yet to be offset from the margins earned by selling products and services to the customers. In these cases, lifetime profitability becomes the basis for retaining or discouraging currently unprofitable customers. Newly acquired customers, even if currently unprofitable, are still valuable because of their growth potential. But unprofitable customers that have been with the company for many years will likely require explicit action (or other rationales, like credibility and learning opportunities) to turn them into assets.
Figure 4-2 presents a simple way to combine considerations of targeted market segments and customer profitability.
Customers in the two main diagonal cells in Figure 4-2 are easy to handle. A company certainly wants to retain its profitable customers in targeted segments, and should have little future interest in unprofitable customers in untargeted segments. The customers in the two off-diagonal cells create more interesting managerial situations. Unprofitable customers in targeted segments (the upper righthand cell) represent opportunities to transform them into profitable customers. As discussed, newly acquired customers may require little action other than watching to see whether increased business in the future makes them profitable. Longer-standing customers that are unprofitable may require repricing of services or products that they use extensively, or developing improved ways of producing and delivering these products and services. Profitable customers in untargeted segments (the lower lefthand cell) may certainly be retained, but need to be monitored to assess that new demands for services or features, or changes in the volume and mix of products and services they purchase do not cause them to become unprofitable. By using both market segment and profitability measures to view customers, managers get valuable feedback on the effectiveness of their market segmentation strategies.
Figure 4-2
Targeted Segments and Customer Profitability
Beyond the Core: Measuring Customer Value Propositions
Customer value propositions represent the attributes that supplying companies provide, through their products and services, to create loyalty and satisfaction in targeted customer segments. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction, acquisition, retention, and market and account share.
While value propositions vary across industries, and across different market segments within industries, we have observed a common set of attributes that organizes the value propositions in all of the industries where we have constructed scorecards. These attributes can be organized into three categories (see Figure 4-3).
Product/service attributes
Customer relationship
Image and reputation
P RODUCT AND S ERVICE A TTRIBUTES
Product and service attributes encompass the functionality of the product/service, its price, and its quality. For example, one can view the two customer segments identified by Rockwater as illustrative of the classic choice between customers that want a reliable low-cost producer versus those customers that want a differentiated supplier, capable of offering unique products, features, and services. Rockwater’s Tier 2 customers did not want frills and customization.
The customer profitability measure may reveal that certain targeted customers are unprofitable. This is particularly likely to occur with newly acquired customers, where the considerable acquisition effort has yet to be offset from the margins earned by selling products and services to the customers. In these cases, lifetime profitability becomes the basis for retaining or discouraging currently unprofitable customers. Newly acquired customers, even if currently unprofitable, are still valuable because of their growth potential. But unprofitable customers that have been with the company for many years will likely require explicit action (or other rationales, like credibility and learning opportunities) to turn them into assets.
Figure 4-2 presents a simple way to combine considerations of targeted market segments and customer profitability.
Customers in the two main diagonal cells in Figure 4-2 are easy to handle. A company certainly wants to retain its profitable customers in targeted segments, and should have little future interest in unprofitable customers in untargeted segments. The customers in the two off-diagonal cells create more interesting managerial situations. Unprofitable customers in targeted segments (the upper righthand cell) represent opportunities to transform them into profitable customers. As discussed, newly acquired customers may require little action other than watching to see whether increased business in the future makes them profitable. Longer-standing customers that are unprofitable may require repricing of services or products that they use extensively, or developing improved ways of producing and delivering these products and services. Profitable customers in untargeted segments (the lower lefthand cell) may certainly be retained, but need to be monitored to assess that new demands for services or features, or changes in the volume and mix of products and services they purchase do not cause them to become unprofitable. By using both market segment and profitability measures to view customers, managers get valuable feedback on the effectiveness of their market segmentation strategies.
Figure 4-2
Targeted Segments and Customer Profitability
Beyond the Core: Measuring Customer Value Propositions
Customer value propositions represent the attributes that supplying companies provide, through their products and services, to create loyalty and satisfaction in targeted customer segments. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction, acquisition, retention, and market and account share.
While value propositions vary across industries, and across different market segments within industries, we have observed a common set of attributes that organizes the value propositions in all of the industries where we have constructed scorecards. These attributes can be organized into three categories (see Figure 4-3).
Product/service attributes
Customer relationship
Image and reputation
P RODUCT AND S ERVICE A TTRIBUTES
Product and service attributes encompass the functionality of the product/service, its price, and its quality. For example, one can view the two customer segments identified by Rockwater as illustrative of the classic choice between customers that want a reliable low-cost producer versus those customers that want a differentiated supplier, capable of offering unique products, features, and services. Rockwater’s Tier 2 customers did not want frills and customization.
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