Merchant Banking Firm Customer Value Assessment And Applications

Since 1990s, entrepreneurs and researchers have been paying special attention toCustomer Relationship Management (CRM), which is seen as an important way todifferentiate their products or services from others by enterprises, especially in serviceindustry. China banking industry has also introduced CRM into their businesses givento the gradually intensified competition. It can be observed all banks arecustomer-oriented when making marketing strategies and customers that providegreater value are accorded a higher level of attention. Generally speaking, CRM is avalue-based business process during which organizations identify and retain theirprofitable customers by means of customer value, the key index that can be used toestimate customers' profit contribution. As a result, the effect of CRM depends mostlyon whether customer value is evaluated and quantified accurately. Furthermore, CRMis based on customer relationship life cycle, under which customer value is composedof current realized value and future potential value.In banking practice, banks usually use customer profitability analysis (CPA) tomeasure customer value after the introduction of CRM software. CPA is retrospectivein nature, bound to a prior period accrual accounting view of profitability, whichinduces it can provide little insight into a relationship's future ranking within thecustomer base. Under CRM strategies, the above shortcoming of CPA makes itnecessary to consider customer future potential value, which can be measured bycustomer lifetime value (CLV), when evaluating value of customers. Based on thediscussion of customer value theories, this paper concludes that commercial banksshould use customer cumulated profit and CLV to evaluate separately the current andfuture potential value of existing corporate clients. And also, it analyzes theoreticallyone of the methods to compute CLV and the application of the above indexes inbanking customer segmentation.The significance of this paper lies on the fact that it bases its research on thesegmentation of private and corporate customers and provides a customer valueevaluation system consisting of customer cumulated profit and CLV, which can beapplied to estimate the value of corporate clients of commercial banks. This caneffectively improve the effect of the CRM.There also exist some shortcomings of the paper. This article mainly focuses onthe existing corporate clients without considering the potential ones. It only gives atheoretical way to compute customer lifetime value, which needs to be improved inpractice further. Besides, economic capital cost is not taken into account whenquantifying CLV. All of the above shortcomings should be perfected in the futureresearches.