CUSTOMER VALUATION THEORY & FIRM VALUE

Interaction Strategy

The firm-customer relationship is made of constant interactions between the two. To this end, an effective interaction strategy is needed, one that meets the various demands and expectations of the customer base. Implementing the interaction strategy requires the firm to adopt an interaction-oriented approach, which consists of four components – customer concept, interaction response capacity, customer empowerment, and customer value management – that firms can utilize to increase its impact on a firm’s profitability (Ramani and Kumar 2008).

First, the customer concept proposes that the unit of every marketing action or reaction is an individual customer. This firmly places the customer at the top of the hierarchy in the customer-firm relationship. By doing so, firms are able to observe customer behavior and respond appropriately.

Second, the interaction response capacity (the degree to which a firm can provide successive products or services based on previous feedback from customers) highlights the importance of paying attentiong to and promptly addressing customer needs.

Third, the customer empowerment component refers to the extent to which a firm allows its customers to (a) connect with the firm and design the nature of transaction, and (b) connect and collaborate with each other by sharing information, praise, and criticism about a firm’s product and services.

Finally, the customer value management component refers to the extent to which a firm can quantify and calculate the individual customer value and use it to reallocate resources to customers.

Firms such as IBM and American Express, through their endorsement of practices that are consistent with the elements of interaction orientation, have realized superior business performance, thereby demonstrating the managerial significance of the interaction orientation approach.

Reference
Ramani, Girish, and V. Kumar (2008), "Interaction orientation and firm performance," Journal of Marketing, 72 (1), 27-45.