Customer Capital.
How customers drive business results.Customer Capital is an emerging concept
developed in partnership by the marketing
community for businesses and agencies.
"Business requires marketers to be more
accountable, collaborative and commercial
… and develop a coherent framework for
measurement and reporting:
• Develop "customer capital" as a suite of
customer-based metrics
• Use the changes to reporting and OFRs to
An introduction to Customer Capital promote marketing to all company directors
by Peter Fisk
• Engage investors in a better understanding of
marketing and how it drives the business"
The Marketing Society's FMCG Business Leaders
Event chaired by Andrew Marsden
Sponsored by Cap Gemini The Marketing Society's "Manifesto for Marketing"
22 June 2005Customers are the scarcest resource in
business today
• Attracting the best customers
• Capturing a premium for brands
• Gaining their loyalty and advocacy
Customers (consumers)
Tell others
are the key drivers of
Pay more
business success Stay longer
Cost less
Buy more
12121212 3333 4444 5555 6666 7777
Average length of customer
relationship (in years)97% of CEOs say that creating long-term
shareholder value is their primary objective
• Long-term share growth and dividends
• Externally, the perceived future worth
• Internally, the sum of future cashflows
"E"Economconomic vic vaalue"lue" is this thee su summ
Business performance ££££ of likof likelelyy future future ssttreareammss ofof
econoeconommiic profitsc profits
is ultimately about creating
EEccoonomnomiicc
"shareholder value" Profit $Profit $
TToodayday +1+1 +2+2 +3+3 ++44 FuturFuturee
FutFutFutFutureureureureWhat drives the market value of a business?78% of the Fortune 500, and 72% of FTSE
350, and 35% of all listed companies
worldwide are intangible
• FMCG 58% (USA 88%, UK 81%, Japan 38%,
Germany 71%)
• Other consumables 26% (USA 47%, UK 48%,
Japan 15%, Germany 21%)
• Communications 58% (US 81%, UK 69%, Japan
Shareholder value 41%, Germany 71%)
is increasingly due to • Utilities 16% (US 67%, UK 52%, Japan 15%,
Germany 42%)
"intangible assets" Market value
Intangible assets
Book value
Tangible assets
Source : Brand Finance "Invisible Business" Report 2005Intangible assets range from patents and
trademarks, talent and relationships.
Edvinsson/Sveiby define 3 categories:
• Customer Capital
• Human Capital
• Structural Capital
New international accounting standards have
Customers are the provide new categories for the reporting of
intangible assets, and new categories for post-
scarcest resource and purchase allocation.
most valuable asset Customer assets
Marketing assets
Intangible assets Contract assets
Technology assets
Goodwill
Tangible assets
Source : iasb.orgHow do we measure successful marketing performance?Most marketing performance is not
articulated in either the language of
customer or shareholder
•Technical jargon
• Communications-biased
• Short term, tactical measures
• Spend matters more than results
Few companies
connect customers
Average
with shareholder value TSR
+ 2.6%+ 2.6%
STRSTROONG BNG BRRAANDSNDS
0%0%
9.5 pp9.5 ppttss
didiffffeerrenceence
WWEEAKAK B BRRANANDDSS TSRTSR
-6-6..99%%Customers and brands, marketing and
innovation should be top of the boardroom
agenda, driving direction and focus
• Investment rather than cost
• Long-term rather than short-term
• Whole business rather than functional
This results in a
dislocation between
marketing and businessAligning customer passion with business resultsAligning customer strategy with business resultsAligning customer performance with business resultsWe need to better articulate the importance
and impact of marketing investments, and
customer activities
• Connecting customers and shareholders
• Balancing short-term and long-term
• Focusing on what matters most
We need a simple,
Customer
awareness/reach
inclusive language to
Customer
preference Sales revenue
focus on what matters Price and Plus other factors Operating
share of wallet profits
Operational
efficiencies
Shareholder
Plus other factors
Customer value
retention/loyalty
Innovating Sales growth
new products
Building Future
the brand Plus other factors cashflows
Reduced cost
of capital1. Customer Metrics
A basket of customer-based measures relevant to
your business, expressed in clear simple terms
2. Customer "Equity"
A weighted index of selected customer-based
measures, similar to brand equity
Customer 3. Customer "Valuation"
Capital The customer portion of likely future cashflows to
the business, similar to brand value.Customer Reach Customer Contracts
We currently reach 90% of the UK population. 40% of customers are on long-term contracts of > 2 years
This is more than our nearest competitor at 79%
Customer Retention
Customer Preference 67% of our customers have stayed for over one year
45% of our customers say they prefer us. We seek to increase this retention rate to 80% in the next
60% of existing customers intend to use us next time 3 years
Customer Satisfaction Customer Loyalty
27% of our customers say that they are very satisfied. 60% of existing customers intend to use us next time
45% say they are satisfied to some extent. 12% of customers say they would recommend us
Customer Volume Customer Growth
We currently have 12.2m customers. We expect to grow customer numbers by 15% for next 3
This has grown by 12% over the last year. years. The UK market will grow at 7% for next 3 years
Customer Share Customer Innovation
We currently have 33% of the UK market. 26% of our revenues come for services released in last
year.
Customer Yield We expect 12% of next years revenues to come from new
We generate £365 per customers products
This is 45% higher than the market average
Strategic marketing investments
Tactical marketing costs
We spent £120m on sales promotions and discounts We spent £180m on marketing costs relating to brand and
relationships
Revenues
We generated £2.1b in revenues Intangible Assets
This is 12% increase on the previous year We calculate that its brand, consumer and distributive
relationships are worth £4.2bn
Operating Profit
We generated £254m operating profit Business Value
This is 45% increase on the previous year. We project that profits will grow at 12-15% each year over
the next five years (producing an intrinsic value of £xbn)Cu
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1. Customer Metrics. c c C to
t e C s
i
o
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C
A basket of measures
relevant to your business
Selecting the most important metrics.
Articulating them in customer terms.Customer
advocacy
Customer
preference
2. Customer Equity.
Customer
equity
A weighted index of the Customer
Price premium
key customer metrics
Customer
satisfaction
Customer
reach
Selecting the most important metrics.
Weighting them as an indexCustomer
"value"
Business
value
3. Customer Valuation.
The "customer" portion of
future cashflows
2006 2007 2008 2009 2010 Future
Calculating customer contribution to future
cashflows, discounted to present value"A compelling place to work, shop and invest"Customer Capital focuses the business on
how it creates rather than just counts its
future cashflows
• Customer orientation - making customer focus
matter to commercial success, enabling better
delivering of promises into reality.
• Forwards orientation - lead indicator of business
results, articulating the value of a long-term
investment in brands, relationships and innovation
A simpler and more
• Investor orientation - the foundation of your new
strategic focus for OFR (the Operating and Financial Review within
your annual report) and investor relations
business performance
Source : frc.org.ukCustomer Capital articulates the significant
but often unrecognised value of marketing
in the more engaging and indisputable
language of customers
• Engages directors - its hard to argue with a
customer-based logic
• Engages business - operational areas can all
share in customer goals
A more compelling • Engages people - a more positive reason to
come to work everyday
and collaborative
language for marketingConnecting customers and shareholders, passion and profitsWhat should you do to embrace the ideas
of "Customer Capital" in your business?
How will it help you make a better case for
strategic investment, engage people more, and
deliver better short and long-term results?
• Improve what you do now.
How could they be better articulated in customer-
based language, or adjusted to reflect customer
drivers of business results?
Where do you start
• Focus on your value drivers.
in your business?
Evaluate which activities have most impact on
your long-term business value (a complex but
fairly quick task), and refocus activities and
metrics on the prioritised value drivers.
• Start making it real.
Embrace the appropriate customer-based metrics
in your marketing scorecards, boardroom reports,
budget submissions, investor relations and as the
focus of your directors' next OFR.How do we together move the "Customer
Capital" concept forwards?
What should we do next as a marketing
community, to further develop, test and apply the
ideas practically for companies and agencies?
• Find "test" partners.
Would you be interested in working with us to
pilot the concept in your company, and further
develop it?
How can we work
• Share best practices.
together to do it?
Investigate the best examples of customer-based
metrics and management currently being used
practically inside companies
• Promote the concept.
The IPA and Marketing Society will continue to
promote awareness of the concept in the
business and marketing communities,
development and practical adoption.
For more information contact Janet Hull at janet@ipa.co.ukcustomercapital.orgPeter Fisk is a highly experienced marketer. He spent
many years working for the likes of British Airways and
American Express, Coca Cola and Microsoft. He was
the CEO of the world's largest professional marketing
organisation, the Chartered Institute of Marketing, and
for almost 10 years led the global marketing practice of
PA Consulting. He is currently Managing Director of
Brand Finance, the brand strategy and valuation firm.
Peter's new book Marketing Geniuswill be published
in September 2005, and describes why, in today's
complex markets, a more intelligent and more creative
approach to marketing can deliver extraordinary
results. He recently co-authored The Marketing
Society's Manifesto for Marketing, and led the
development of Customer Capitalin response to the
new OFR business reporting requirements.
peterfisk@peterfisk.com
www.MarketingGeniusLIVE.com