The Measurement And Management Of Customer Profitability Within The Context Of Value Co-creation

For customer loyalty fail to customer relationship management in practice, its validity was doubted in academia and business community. It is even thought that customers only have differences in value but not in loyalty. As early as1997, Dowling and Uncles had doubted the profitability of customer loyalty, they thought the contention that loyal customers were always more profitable was a gross oversimplification. Many empirical studies had proved the weak correlation between customer loyalty and profitability. The failure of management strategies using customer loyalty as evaluation indicator made academia and business community recognizing that it could not manage customers only according to their behavioral loyalty or historical revenue, but must explore a more reliable indicator to evaluate customer to accurately identify the real profitable ones, thereby creating a greater profits, which droved people paying more attention to customer profitability. Thus, the measurement of customer profitability (i.e. CLV model) had become another hot topic.It could find that the validity and superiority of CLV have been fully understood by reviewing existing studies. During the last ten years, the studies on optimizing and improving CLV model had reach new achievements continuously, and the connotation and measurement accuracy of CLV also had updated. Especially, the rapid development of information technology and individualization needs have made the marketing thoughts transformed G-D logic into S-D logic, which gave birth to the era of innovation2.0. Business model is developing to be value co-creation, in which the customer experience is a new value basis. Therefore, the hidden value created from customer participation becomes the very important value components. However, the connotations of existing CLV were limited to the profits by customer purchase in existing studies. Though there had been some scholars emphasized the customers’indirect value and built its measurement model, the value structure of CLV as well as the formation mechanisms of its value components hadn’t been analyzed deeply. Especially, the connotation of the value created from customer participation and its measurement hadn’t been studied fully. These led to the limitation of CLV in practice, even led to fail to customer relationship management.Accordingly, this research tried to make a breakthrough at two key issues which were how to define the value structure and connotation of customer profitability in the context of value co-creation as well as measure its value components, and how to optimize customer profitability management. Aimed to answer these very questions, six topics, which were the value structure and measurement of customer profitability, the formation mechanism of CRV, the formation mechanism of CIV, the optimization and function property of customer profitability’s measurement model, building a optimal customer profitability management system-PCPMS, and the coupling mechanism of dynamic evolution in the process of value co-creation, had been studied in order to achieve the following objectives.(1) Defining and explaining the value structure of customer profitability;(2) Revealing the formation mechanism of CRV, and building CRV model;(3) Revealing the formation mechanism of CIV, and building CIV model:(4) Optimizing the measurement model of customer profitability, and revealing its function property;(5) Building an optimal customer profitability management system in the context of value co-creation.Based on reviews of CLV and its value components (i.e. CRV and CIV), and value co-creation management, this research found the deficiencies and difficulties of existing CLV model in customer relationship management, the lack of knowledge on mechanism of the process of value co-creation, and the crux of these problems, therefrom, argued the validity of studying from the perspective of analyzing customer profitability’s value structure. And then, the value structure of customer profitability was expounded, and the research perspective and design of each topic were given (see chapter2).This paper studied the formation mechanisms of CRV and CIV. respectively, from the perspectives of social influence and planning behavior approach, and proposed their conceptual models by theoretical analysis. And then, the hypotheses on the formation mechanisms of CRV and CIV were tested using questionnaire method, accordingly, some management implications were given (see chapter3&4). On the basis of empirical research, the measurement of the four value components, which were current value, potential value, CRV and CIV, were discussed deeply, then CLV model was optimized. And the variation laws between customer loyalty and profitability as well as the key influence factors were revealed by analyzing the function property of the proposed CLV model (see chapter5).According to the mathematical analysis, an optimal customer profitability management method named profitable customer pool management system (PCPMS) was proposed. After expounding its management method and process, this research further discussed a new management logic named dynamic value co-creation strategy management evolved from the findings on CLV and PCPMS, pointed out its main idea was to make customer and enterprise co-evolution by increasing their degree of coupling, and then explained the coupling property and the effect mechanism of dynamic evolution in value co-creation (see chapter6). For opening the black-box of this coupling mechanism, the paper expounded the individual psychodynamic structure within the context of value co-creation from the perspective of psychodynamic structure, then analyzed the dynamic and coupling mechanism in the process of value co-creation, and built the fitness landscape of value co-creation system using NK model, further, revealed the evolutionary process of the value co-creation system and the effect of enterprise’s cognitive ability on this evolution by simulation in order to prove the superiority of the very new management logic (see chapter7).Finally, after summarizing the innovations and findings, the limitations of this study were pointed out, and some future research topics were given.