What Is a Customer Portfolio?
How well do you know the people in your life? Sure, you probably have acquaintances like colleagues, people you know from the gym, and friends of friends. But the people you really know, you know in-depth: their favorite restaurant, what makes them laugh, how they like to spend their weekend.
Though businesses don't have friends (in the true sense of the word), they do have customers. And knowing and understanding how those customers operate and what makes them tick can either make or break a business relationship. That's where a customer portfolio can come in handy.
A customer portfolio is a segmented list of the various groups that do business with you. Think of it like a financial portfolio. An individual might have a grouping of all their financial assets, broken down into various categories such as stocks, bonds, student loans, mortgage, and car payments. This portfolio helps them to get the big picture about their financial situation. Similarly, a customer portfolio can help a business get the big picture about its customer base.
For example, a dry cleaning business might have a customer portfolio with the following groups:
- Individuals and walk-in customers
- Big corporations
- Public schools
- Restaurants
- Hotels
The Coca-Cola brand, for instance, details some of its customer portfolio on its website, referring to its partnerships with ''large international chains of retailers and restaurants and small independent businesses.'' By understanding who its customers are, Coca-Cola is able to do just about everything better: marketing, support services, improving sales, anticipating needs, and creating business solutions.
Customer Portfolio: Components
So what's in a customer portfolio anyway? Is it just a big list of business categories and names? Hardly. Here are the important components that help you better understand who you work with.
1. Customer Analysis and Behavior
If you're trying to figure out how your customers select products or why their processes are the way they are, you need to do a customer analysis. A customer analysis helps break down who your customers are in terms of demographics, psychographics, and behavioral patterns. Demographics might include the age of a business or the gender or racial makeup of its workforce. Psychographics, on the other hand, take into account opinions, attitudes, and aspirations. Behavioral patterns might include how a customer makes decisions or influences other customers. Combined, this information helps build a profile of your customers.
2. Marketing Audits
A marketing audit is a way to examine a business' products or services and how they relate to the customer. It should include information on how you want to solve a customer's needs and characteristics of the marketplace and how to succeed in it. It may also take a closer look at the competition and how it stacks up as well as a look at your industry in general.
3. Customer Profitability Analysis
Customer profitability analysis is a tool used to determine who are and aren't your profitable customers. All businesses have customers who are less profitable for the bottom line than others. This exercise helps businesses determine the customers they want to attract, retain, and grow. The profitability analysis looks at both the revenue streams from customers and the costs associated with certain customers or groups both day-to-day as well as over the life of the relationship.
4. Customer Retention and Loyalty
We're all familiar with customer loyalty: those feelings and experiences that keep us going back to a brand over and over again. In a customer portfolio, looking at customer loyalty is an examination of the likelihood of a customer to go elsewhere. It may also include churn rate, which is the number of customers who do leave.
Customer Portfolio: Importance
A customer portfolio is a tool in the toolbox for business owners and managers. They have numerous benefits of strategic importance for a business.
First, they help businesses manage their risk/reward ratios. That basically tells you what your expected revenues might be relative to the risks you undertake to earn those revenues. This alone can help you sustain and grow a business because you know where to best focus your efforts.
Second, a portfolio is important because it provides insight into how customer groups are performing. If a dry cleaning business examines its public schools sector and realizes it's losing money, the business might opt to change strategies or eliminate this particular group.
A customer portfolio also allows a business to proactively manage its relationships with customers. That might mean focusing a little more intently on high revenue producers or developing new strategies to acquire customers in a segment that's on its way up. A portfolio analysis can help you determine new groups to pursue.
Think about the benefits with product or service lines as well. What do you offer that has sustained value to your customers? Who else might benefit from that product offering? Similarly, what products or services could be developed to meet existing customers' needs? This is an effective way to build and broaden customer relationships.
Marketing strategies also benefit from a customer portfolio because it gives you a better picture of who to target and how best to reach them.
Lesson Summary
Okay, let's take a moment or two to review. In this lesson, we learned that a customer portfolio is a comprehensive assessment of the groups that you do business with. For example, that might include public schools, restaurants, and individuals if you owned and operated a dry cleaning business.
A customer portfolio includes things like customer analysis of demographics, which might include the age of a business or the gender or racial makeup of its workforce; psychographics, which take into account opinions, attitudes, and aspirations; and behavioral patterns, which might include how a customer makes decisions or influences other customers. A customer portfolio might also include a marketing audit, which is a way to examine a business' products or services and how they relate to the customer that should include information on how you want to solve a customer's needs and characteristics of the marketplace and how to succeed in it. It might also include a customer profitability analysis, which is simply a tool used to determine who are and aren't your profitable customers. Finally, we learned that it might include metrics looking at customer loyalty, including details like churn rate, which is the number of customers who do leave.
The strategic importance of a customer portfolio can't be underestimated. It can help businesses determine risk/reward ratios and investigate how certain customer segments are performing. It's also useful for determining marketing and product strategies and building and broadening customer relationships.
