 - In customer relationship management (CRM), customer valuation is a scoring process used to help a company determine which
customers the company should target in order to maximize profit. Customer valuation requires that the company evaluate past
data to learn which customers purchased recently, which customers purchased frequently, and which customers spent the most
money, in hopes that the company can forecast future purchase potential and make sure time and resources are spent only on
its best customers.
To understand how customer valuation works, let's imagine there is a company that manufactures skateboards called
CoolSkate. CoolSkate's sales are made primarily through Internet and print catalog sales. Through surveys and questionnaires on
their Web site, CoolSkate has accumulated quite a bit of data about the buying habits, preferences, and age range of their
customers. With this data, CoolSkate will devise a customer valuation scoring system that awards points based on total
purchasing dollars, repeat purchases, and customer loyalty. CoolSkate can then use the information gained from the customer
valuation scores to predict repeat-purchase probability as well as the probability of attrition, and target their promotions to
customers who are likely to make new purchases.
Customer valuation is based upon the 80/20 rule in marketing, whereby a company spends the majority of its time working
with its best customers. There are many software applications on the market to help companies determine a point system relevant to their products or services and combine aggregated data to determine customer valuation.
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06 Mar 2007
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