Diversifying Your Customer Portfolio

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RESEARCH BRIEF

The authors contend that customer portfolio management — a process of creating value across all of a company’s relationships — can bring much needed perspective to the myopic pursuit of customer satisfaction. They describe in depth the evolution in relationship marketing. Four distinct perspectives — economic, sociological, psychological and operational — illustrate what sorts of relationships take place and when they work best. Customer portfolio management, which brings these perspectives together, seeks to understand how an organization can manage the range of customer relationships — from arm’s-length transactions to strategic partnerships — in order to create value and develop a competitive advantage. The customer portfolio lifetime-value model emphasizes that a "large leaky bucket," or base of weaker customer relationships, provides a base from which more-profitable, stronger relationships can be built.

Companies such as Continental and Northwest Airlines, IKEA and Pan Fish are already working to create value by balancing the various customer relationships in their portfolios. And as marketing thinking evolves further — away from the "customer is king" and toward "the customer is cash" — companies are increasingly discovering that investing in the entire range of customer relationships is critical to competing effectively in the future.

Michael D. Johnson is the D. Maynard Phelps Professor of Business Administration and a professor of marketing at the University of Michigan’s Stephen M. Ross School of Business in Ann Arbor. Fred Selnes is professor of marketing at the Norwegian School of Management BI in Sandvika, Norway. Contact them at mdjohn@umich.edu and fred.selnes@bi.no.

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