Getting customers to shift their value between from one supplier /company to another is particularly difficult when the service is binary - when customers either have to be 100 per cent with one supplier or another. This is one reason why customers have not moved between power suppliers after deregulation as much as was first thought. In many markets, higher value customers are often harder to shift, even if they seem the most likely to profit by it. One reason for this may be that any saving is less significant in relative terms - the well-off individual who can save $100–200 a year on electricity may not find the game worth the candle, compared to the poorer user who might switch for a $40 saving.
However, for products and services where share of wallet can be shifted, such as telecommunications or financial services, the story can be very different. If switching is easy, customers will often shift those bits of their business where they feel they are getting worst value. This leaves the incumbent supplier with those bits of business where customers believe they are getting the best deal - and of course these can be rather poor business for the suppliers. So, many telephony customers have switched their long distance calls, calls to mobiles and international calls to low cost suppliers, leaving their local telephone company with unprofitable local calls. The same risk applies to postal businesses. This is why cross-subsidy is so dangerous for suppliers whose monopolies have been opened up to competition.
An interesting version of this problem is where individual customer value grows over time - typically because income rises with age and so customers buy higher value products. This applies in many areas - for example cars, financial services, travel and telecommunications. Here, the question for the attacking company is whether it can get a good share of the higher value business without having the customer from the beginning. The answer to this is - yes. Indeed, banks have discovered to their cost that having lots of loss-making student customers is not much use if they switch suppliers as soon as they become valuable. For the attacking company, the switching proposition is usually based on excellent value for money, because the incumbents can't give such good value because of the cross-subsidies required to sustain the loss-making early-stage customers.
The defence strategy in this case is to be so good at retaining value as customers become more valuable that there is no need to recruit as many customers at the loss-making or low value stage. More selective early-stage customer recruitment, combined with better prediction of which customers have more value available, and when they will have it available, is now becoming the central plank of many companies' customer management strategy. This requires predictive modelling, usually based on events and transactions, as it is the latter that indicate rising value. Of course, it is also important to make sure that the company's products and services, people, processes and systems are attuned to managing this value towards it.
At the heart of most CRM programmes is a segmentation exercise - classifying customers so that they can be managed better.
These are the people who happily work up to the age of 70 or beyond, and consider themselves middle-aged until they are well past 65. Because they feel young, their purchasing patterns are young too - except that they are beyond the period of accumulation of physical assets. If they are lucky, their children will be married or in stable relationships, and beyond the period when they rely on their parents (though children do seem to have a habit of extending this period of dependence). They enjoy eating out, holidays, perhaps entertaining, the less strenuous forms of sport including just watching, and so on). They are also (because they qualify) often formally within the group that the state defines as needing help (eg public transport concessions, state pensions, access to day centres). In some cases, they provide the backbone of a voluntary force helping even older people.
The number of such people is about to surge, as lot more turn 60. However, we are not sure that most marketers have realized what this implies. Take advertising, for example. With the exception of hair coloring and a few other products that must recognize the age of their customers, most products and services seem to be aimed at people much younger than the typical consumer. Is this because all people want to feel young? Or is it because marketers don't realize the strength of the 'cohort effect' - what happens when people pass through different age groups. This is why the CRM approach can be so valuable for marketers, because segmentation in CRM does not (and should not) mean dividing the market up into large broadly similar groups, but rather finding out what people are like, now, and what they want to do, and allowing them to do it.
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