The Marketing Book 5th Edition

Existing New

Existing

New

CUSTOMERS

PRODUCTS

MAIN

STRATEGIC

THRUST

Controlling marketing and the measurement of marketing effectiveness 523

indicate how customers should be grouped
together. The idea is to group together custom-
ers who are treated very similarly and to
separate groups where there are significant
differences in the costs incurred and, hence,
potentially in the rates of financial return
achieved. This sort of CAP analysis is illus-
trated in Figure 20.9, and shows that only
customer-specific elements should be
included.
As the customer segmentation becomes
greater (i.e. the customer groups get smaller
and smaller, with the greatest segmentation
being to individual customers), it is clear that
less and less costs are directly attributable to
each group of customers. Hence, for different
levels of resource allocation decision, different
levels of segmentation will be needed, and
the CAP analysis system must be able to cope
with this requirement for hierarchical
segmentations.
Many companies now operate quite
sophisticated CAP systems of this sort but, if
the strategy is to be based around customers,
the analysis needs to be done on a long-term
basis. Such long-term CAP analyses are less
common. The idea is to evaluate which types of
customer are worth investing in because, over
their economic life cycle, the business expects
to be able to generate a positive net present

value from the investment. This type of market-

ing strategy is commonly referred to as rela-

tionship marketing (and this is considered in

detail in Chapter 3) because the business tries

to develop (i.e. invests in) a long-term relation-

ship with the customer. If this type of market-

ing strategy is in use, the business needs to

tailor its management accounting system to

treat these customer relationships as a long-

term asset of the business. Thus, development

and maintenance expenditures are as relevant

here as in the earlier discussion on brands.

Indeed, in a relationship marketing-based

strategy, attention shifts towards customer

retention rather than the more common cus-

tomer acquisition. The key priority is retaining

the most valuable long-term customers, who

will repay the required marketing expenditure.

However, in order to attract and retain these

valuable long-term customers, the company

must create more valuefor these customers than

the competition; any sustainable long-term

relationship must be mutually benficial.

Customer value can be defined as the

perceived benefit obtained by the customer less

the price paid and any other ‘costs’ (e.g. time,

inconvenience) incurred in order to own the

good or service. Customers who do not per-

ceive that they are getting value from a relation-

ship are likely to defect. If this happens, the

Figure 20.8 Customer-led strategies: maximizing the value of existing customers