Realize Your Customers' Full Profit Potential
Alan W.H. Grant and Leonard A. Schlesinger
Harvard Business Review September-October 1995
HBR Executive Summary
Achieving the full profit potential of each customer relationship should be the fundamental goal of every business. The logic is as simple as it is compelling: profits from customer relationships are the lifeblood of all businesses. And, at the most basic level, these profits can be increased in only three ways: by acquiring new customers, by enhancing the profitability of existing customers, and by extending the duration of customer relationships. Yet the business models that drive decisions in most large companies do not focus on achieving full profit potential. Why? Because they were forged before it was possible to focus directly on these key drivers of business profitability.
At several junctures since the industrial era, advances in technology and increasing access to information have created the need for new management models: from the productivity model of the industrial era to the competitive model of the postwar era to the quality model of the 1980s. In each era, the prevailing models accurately depicted the relevant drivers of profitability. But the capabilities necessary to focus directly on maximizing profitability from customer relationships were simply not in place.
Today companies can use information and technology tools to link their investments in customer relationships to the returns that customers generate. In other words, companies can now optimize what the authors call the value exchange: the relationship between a company's financial investment in customer relationships and the return that customer generate in responding to that investment.
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Harvard Business School Publishing © 1995
