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Speed Review: Angel Customers & Demon Customers

Discover Which Is Which and Turbo-Charge Your Stock

by Larry Selden & Geoff Colvin

Speed Review: Angel Customers & Demon Customers
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Reinvent Your Company Around Customers
The authors of Angel Customers & Demon Customers are proposing a radical transformation for businesses, and it does not include layoffs or restructuring. Instead, they propose companies should center their companies around their customers -their sources of dollars - and re-envision themselves as portfolios of customers rather than groups of products or services. Larry Selden, a professor of finance and economics at Columbia University Graduate School of Business, and Geoffrey Colvin, Fortune magazine's senior editor at large, take a new look at the way companies handle their customers and offer them better ways they can maximize their share price in any economy.

The authors explain how companies like Fidelity, Dell Computer, Best Buy, and Royal Bank of Canada were able to use a customer-centric process to transform themselves into profitable enterprises.

The first step in the process was learning how to rigorously track profitable and unprofitable customers in a way that shows which customers - the angels - are helping the company's stock. They also found out which customers - the devils - are hurting the company's stock. Using data that was already available or could easily be obtained, the authors discovered that companies often found out that a mere 20 percent of their customers were responsible for the company's entire market capitalization.

The Bottom 20 PercentThey also discovered that "the bottom 20 percent of customers by profitability can generate losses equal to more than 100 percent of total company profits." This showed the authors that treating all customers equally is not a business plan that helps a company's stock price. So, they offer companies a better way to manage their resources and find opportunities for profit.

The authors explain that the customer-centric principles they discuss can be applied to any business in any industry. Along with urging companies to analyze the profitability of its portfolio of customers, they offer two more principles that companies should embrace to improve profits. They are:

  • Every company's portfolio of customers can and must be managed to produce superior returns for shareowners - meaning a consistently better than average share price appreciation.
  • Companies enhance customer profitability and drive their stock by creating, communicating and executing competitively dominant customer value propositions.

According to the authors' research, many managers understand the importance of the customer knowledge opportunity and want to begin realizing it. Because they have not placed customers at the center by following the three key principles, however, their programs are not working as well as they could.

To make these new opportunities work, the authors write that companies must use a premium price-earnings multiple as the measure of success, think about the process in terms of Value Proposition Management (VPM), and create an organization and culture where managers are accountable for realizing the potential of customer knowledge. By implementing these practices, companies can quickly begin to see benefits realized.

To help organizations embrace the book's key principles, the authors offer expert advice to help them better understand how the average customer creates or destroys shareholder value, and define the concepts that will allow them to figure customer profitability. By showing companies how others have made bad decisions and misallocated resources, they show organizations the economic profitability of customers. A practical scorecard is provided that can help firms track their progress.

Customer-Centric Companies
The authors explain that customer-centric companies focus on meeting the customers's total needs. This focus encourages companies to offer services and intellectual property, on which profit margins are almost always much higher than those of products, and the return on invested capital is very high because little invested capital is needed.

Why We Like This Book
The business experts who wrote Angel Customers & Demon Customers present a well-formulated strategy to help companies understand customer profitability and develop improvements that can create a more profitable business. By showing organizations new and improved ways they can grow by developing a customer-centric mindset and a service-oriented culture, the authors provide them with valuable strategies for reinventing their businesses to better serve investors, customers and employees.