Question

CPM aims to optimize business performance. There are a number of basic disciplines that can be useful during CPM. Describe these disciplines and discuss one of the disciplines among them.

Answer 1

Basic disciplines that can be useful during CPM, these include market segmentation, sales forecasting, activity-based costing, customer lifetime value estimation and data mining.

Market segmentation-CPM can make use of a discipline that is routinely employed by marketing management: market segmentation. Market segmentation can be defi ned as follows: Market segmentation is the process of dividing up a market into more-or-less homogenous subsets for which it is possible to create different value propositions. At the end of the process the company can decide which segment(s) it wants to serve. If it chooses, each segment can be served with a different value proposition and managed in a different way. Market segmentation processes can be used during CPM for two main purposes. They can be used to segment potential markets to identify which customers to acquire, and to cluster current customers with a view to offering differentiated value propositions supported by different relationship management strategies.

Sales forecasting-The second discipline that can be used for CPM is sales forecasting. One major issue commonly facing companies that conduct CPM is that the data available for clustering customers takes a historical or, at best, present day view. The data identifi es those customers who have been, or presently are, important for sales, profi t or other strategic reasons. If management believes the future will be the same as the past, this presents no problem. However, if the business environment is changeable, this does present a problem. Because CPMs goal is to identify those customers that will be strategically important in the future, sales forecasting can be a useful discipline. Sales forecasting, some pessimists argue, is a waste of time, because the business environment is rapidly changing and unpredictable. Major world events such as terrorist attacks, war, drought and market-based changes, such as new products from competitors or high visibility promotional campaigns, can make any sales forecasts invalid.

Activity-based costing The third discipline that is useful for CPM is activity-based costing. Many companies, particularly those in a B2B context, can trace revenues . In a B2C environment, it is usually only possible to trace revenues to identifi able customers if the company operates a billing system requiring customer details, or a membership scheme such as a customer club, store-card or a loyalty programme. In a B2B context, revenues can be tracked in the sales and accounts databases. Costs are an entirely different matter. Because the goal of CPM is to cluster customers according to their strategic value, it is desirable to be able to identify which customers are, or will be, profi table. Clearly, if a company is to understand customer profi tability, it has to be able to trace costs, as well as revenues, to customers.

Lifetime value estimation-The fourth discipline that can be used for CPM is customer lifetime value (LTV) estimation. LTV is measured by computing the present day value of all net margins (gross margins less cost-to-serve) earned from a relationship with a customer, segment or cohort. LTV estimates provide important insights that guide companies in their customer management strategies. Clearly, companies want to protect and ring-fence their relationships with customers, segments or cohorts that will generate signifi cant amounts of profit.

Data mining- The fifth discipline that can be used for CPM is data mining. It has particular value when you are trying to find patterns or relationships in large volumes of data, as found in B2C contexts such as retailing, banking and home shopping.