On the face of it, the Peppers and Rogers “return on customer” concept (MW May 12) has considerable merit. But anything that focuses the efforts of a business on increasing customer return has to be a good thing – and would certainly go against the current grain of short-termism that characterises so much business today.
But I would add to Alan Mitchell’s reservations about whether such highly data-intensive marketing strategies are actionable. My experience of the customer data held by most client organisations suggests that it does not lend itself to the development of such metrics.
The practicalities of creating a return-on-customer metric from data that is limited in transactional content and varies in quality and consistency are immense. Just for starters: which part of the database should be used to develop the models used to build the metric? And how should this be applied to the parts of the database in which data is more limited or less accurate?
Even where comprehensive data is available, predictive modelling techniques would allow for considerable variation in any return-on-customer assessment. Two independent valuations of the same customer base are likely to yield different results. Realistically, how could a stock market used to working with accounting standards assess, in absolute or comparative terms, the value of different businesses without a standardised measurement technique?
There are other issues as well. The ability to identify, develop and deliver customer strategies that reliably and predictably influence even short-term customer behaviour is some way off. I would be surprised if a customer relationship programme, even one as sophisticated as the Tesco Clubcard, could come close to this. The sensitivity of the return-on-customer measure to small variations in the effectiveness of these customer strategies could be huge.
I also have to say that return on customer does sound like a kind of Economic Profitability Model – a technique that has been around for a while and is espoused by most management consultancies.
I doubt whether the Utopian view of return on customer will ever be attained, but the learning that takes place on the way can only be a good thing.
Hicklin Slade & Partners