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9781591840077: Angel Customers & Demon Customers: Discover Which Is Which and Turbo-Charge Your Stock
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Challenges the belief that all customers are valuable, inviting companies to manage themselves as a customer portfolio in order to get the most out of critical customer segment, and citing the examples of such companies as Best Buy and Fidelity Investments. 30,000 first printing.

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L'autore:

Larry Selden is a professor emeritus of finance and economics at Columbia University Graduate School of Business, a prominent consultant, and an adviser to senior executives in many industries.

Estratto. ę Riproduzione autorizzata. Diritti riservati.:
The Trillion-Dollar Opportunity YouĂre Missing What It Means¨and What ItĂs Worth¨to Be Truly Customer Centered True Story

A customer of a major money-center bank wanted a mortgage recently. He looked like every bankĂs dream customer. HeĂs a highly active trader through the bankĂs stock brokerage services, paying huge commissions, which are extremely profitable for the bank. He also keeps lots of money in the bank, and those large balances are very profitable as well. One thing he didnĂt do was borrow much from the bank¨his current mortgage was with another institution. Note: Mortgages can be highly profitable for banks. So when the day came that this customer wanted to refinance his old mortgage, he called the bankĂs mortgage department. He was sure theyĂd be delighted to hear from such a terrific customer as him.

It was as if he had called the Bank of Outer Mongolia.
The mortgage department had no idea whether he was a good customer or a bad one¨ highly profitable or break-even or unprofitable. They gave him the same treatment and made him the same offer as if he were a stranger who had walked in off the street. He would have to fill out endless paperwork, even though the bank already had much of it. He would have to pay the same fees and interest rates as anyone else. When would the bank make a firm offer of the terms of the mortgage? They couldnĂt really say. In fact, the mortgage department¨being ignorant of the customerĂs history with the bank¨ couldnĂt even offer him assurances that heĂd get the mortgage at all.

Instead of just being miffed, this customer called the manager of the branch where he has his account¨a manager who knew just how valuable this guy was. Then he patched in a manager from the bankĂs mortgage department. These two managers had never spoken to each other before. DidnĂt it make sense, asked the customer, for him to get his mortgage and get it at advantageous rates in light of his long history and high profitability with the bank? If he didnĂt, heĂd certainly see if some other bank could be more accommodating. ˘Sorry,÷ said the mortgage manager, who explained that his hands were tied. This bank, like most major banks today, is the product of several mergers, and after the last big one all mortgage managers were put on a very short leash until the integration got worked through. He was strictly forbidden to do anything special for this or any other customer. ˘Wait!,÷ said the branch manager, now pleading with the mortgage manager in an effort to keep this customer. ˘IĂll pay you the first-year costs of giving this customer a better mortgage deal¨just give it to him! Make him happy! We make loads of money with this guy!÷ ˘Sorry,÷ said the mortgage manager. ˘IĂm not allowed.÷

The customer got his mortgage someplace else, at an institution that could see what he was worth and was hungry for the business. He gradually began shifting his trading from the Bank of Outer Mongolia to the new institution as well. So the bank not only blew a great opportunity to deepen its relationship with this highly profitable customer, it let a direct competitor take a significant piece of the customerĂs business. And it made the customer angry¨a lose-lose deal. Bottom line: a complete disaster for the bank. ItĂs no surprise to find that this bankĂs financial performance is lousy. Its ROE (return on equity)1 is a dismal 10 percent and falling; profits and its stock price have been plunging, and its P/E (price-earnings) multiple is much worse than mediocre, about half the average P/E for the S&P 500. As we write this, the newspapers are full of rumors that the CEOĂs days are numbered.

Sound like any bank youĂve done business with?
Now suppose that instead of this ludicrous, frustrating experience, the customer had encountered something different. Suppose the manager he spoke to wasnĂt in charge of mortgages or a branch but was in charge of him and customers like him. The manager knew everything about the customerĂs relationship with every part of the bank and exactly how profitable he was because this information was available on a computer screen at any time. More important, this manager was accountable for the profitability of this customer and others like him. A few layers up in the organization was an executive whose entire job was to manage the customer segment to which this customer belonged (the bank might call the segment something like ˘wealth builders÷). Other parts of the bank¨mortgages, deposit accounts, brokerage services, branches¨functioned as internal suppliers of products, services, and distribution to this executive and the handful of other executives who were in charge of other customer segments.

Does this sound crazy? LetĂs get really radical: Suppose these segment executives had profit-and-loss responsibility. Suppose the bank could calculate the profitability of each individual customer or customer segment, and these executives were on the hook to deliver specific, budgeted improvements in their segmentĂs profit each quarter.

In this kind of organization, what kind of experience would our bank customer have had? Most likely one that was markedly better¨for him and for the bank.

This fantasy bank is no fantasy. ItĂs Torontoűbased Royal Bank, which has reorganized its huge Personal and Commercial division in exactly this way. The results have been astonishing. The division has reduced expenses by $1 billion, in part because those product areas¨mortgages, deposit accounts, etc.¨are no longer fiefdoms with their own separate administrative infrastructures and their own marketing efforts, which were often aimed in an uncoordinated way at the same customers; everyone in the bank realized that loads of money was being wasted as a result, yet it was virtually impossible to do anything about it. At the same time, the division is ahead of schedule in increasing revenues by $1 billion, a natural result of trying to meet customersĂ total needs rather than trying to sell individual products and services. ThatĂs a $2 billion swing, which the bank is sure resulted from its new approach to business. Because of the bankĂs high fixed-cost structure, most of that money fell to the bottom line. By contrast with the financial performance of the Bank of Outer Mongolia, Royal BankĂs Personal and Commercial division earns a return on equity of about 25 percent. If the division was a freestanding business, we calculate that its excellent profitability and growth prospects would win it a P/E greater than the S&P 500 average¨even though most banksĂ P/E multiples are way below the average. And the stock of the corporation has outperformed that of most North American financial institutions over the period.

Other than these radically different financial results, whatĂs the difference between Royal Bank and the bank that failed so dismally in dealing with our unhappy customer? Not much, by most criteria. TheyĂre both giant, long-established banks offering a full line of financial services to millions of customers. Both have computers loaded with stunning amounts of potentially useful data about those customers. The most important difference between them is much deeper than matters of size, products, or even the business theyĂre in. It is that these banks conceive of the way they do business in profoundly different ways. Specifically, one of them, Royal Bank, has put customers at the center.

Do You Have Any Unprofitable Customers?
Maybe youĂre thinking, ˘ThatĂs fine for a bank, but my business is very different.÷ ThatĂs just not the case. No matter what business youĂre in, the principles weĂre talking about apply to you. We believe that virtually every company in every industry will soon have to reconceive its way of doing business along these lines, with customers at the center. Why? Because the evidence is overwhelming that this is every companyĂs number-one opportunity to create new shareowner wealth, which is something all companies desperately need to do. Consider: Even when the U.S. economy was booming from 1995 to 2000, most of the biggest companies either failed the most basic test of business¨they didnĂt earn their cost of capital¨or they passed by the slimmest of margins.

We know for sure that companies did much worse through the slowdown that followed the stock market bust in 2000, despite heavy layoffs, divestitures, and other heroic cost cutting. To put this in the starkest terms: Most companies are failing to achieve what they must achieve to make their share prices rise.

ThatĂs a big problem. In trying to solve it, the typical executive looks for troubles in the companyĂs products or business units or territories, which sounds sensible. But that kind of conventional analysis is no longer good enough because itĂs typically applied to all customers, profitable or not, high potential or low, in the same way. Ever more brutal competition, combined with demanding capital markets and suspicious investors, is challenging managers to rethink their businesses in a fundamentally new way. A number of companies are beginning to do so, using a crucial new insight: If a companyĂs return on capital2 isnĂt much better than its cost of capital, then its trouble is even deeper than bad products or business units or territories. By definition the company must have a boatload of unprofitable customers.

This is a huge idea: A company consists of both profitable and unprofitable customers¨ angels and potential demons. Some customers are making your company more valuable while some are draining value from it. Not that the demons are bad individuals; frequently theyĂre unprofitable simply because the company doesnĂt know who they are and is failing to offer them the right va...

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  • EditorePortfolio
  • Data di pubblicazione2003
  • ISBN 10 1591840074
  • ISBN 13 9781591840077
  • RilegaturaCopertina rigida
  • Numero di pagine243
  • Valutazione libreria

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