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Increasing Customer Lifetime Value

Increasing customer lifetime value involves increasing profits from each customer through upselling and cross-selling additional products. Satisfied customers provide referrals which results in new customers at a lower acquisition cost, increasing profits and lifetime value. Customer lifetime value allows companies to optimize marketing investments, focus on long-term customer profitability, and implement customer retention strategies. However, accurately calculating lifetime value can be difficult due to variations in customer relationships and migration patterns.

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42 views7 pages

Increasing Customer Lifetime Value

Increasing customer lifetime value involves increasing profits from each customer through upselling and cross-selling additional products. Satisfied customers provide referrals which results in new customers at a lower acquisition cost, increasing profits and lifetime value. Customer lifetime value allows companies to optimize marketing investments, focus on long-term customer profitability, and implement customer retention strategies. However, accurately calculating lifetime value can be difficult due to variations in customer relationships and migration patterns.

Uploaded by

swayam anand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Increasing customer lifetime value

•By definition, customer lifetime value is the present value of the


future profits. To increase customer lifetime value, one has to
increase the profits generated from5+ that customer. The most
common ways to achieve that is either to up-sell or to cross-sell to
the same customer, i.e., make your existing customers buy more
products from you and buy it more often.
•It is noted that highly satisfied customers often recommend it to
their friends, relatives and others. This recommendation results in
new customers and referral sales. The cost of acquiring new
customers by referrals is substantially lower than traditional
methods. In the long run, high customer satisfaction results in
lower customer acquisition costs and higher margins, thus
increasing customer life time value.
Advantages of CLV
• Management of customer relationship as an asset .
• Monitoring the impact of management strategies and marketing
investments on the value of customer assets.
• Determination of the optimal level of investments in marketing and sales
activities .
• Encourages marketers to focus on the long-term value of customers instead
of investing resources in acquiring "cheap" customers with low total
revenue value.
• Implementation of sensitivity analysis in order to determinate getting
impact by spending extra money on each customer.
• Optimal allocation of limited resources for ongoing marketing activities in
order to achieve a maximum return .
• A good basis for selecting customers and for decision making regarding
customer specific communication strategies.
• Measurement of customer loyalty (proportion of purchase, probability of
purchase and repurchase, purchase frequency and sequence etc.)
• In marketing CLV is the present value of the future
cash flows attributed to customer relationships.
Customer lifetime value has intuitive appeal as a
marketing concept, because in theory it represents
exactly how much each customer is worth in
monetary terms, and therefore exactly how much a
marketing department should be willing to spend to
acquire each customer. In reality, it is difficult to
make accurate calculations of customer lifetime value
due to the specific calculation depends on the nature
of the customer relationship.
Customer relationships are often
divided into two categories.
• In contractual or retention situations, customers who do not renew
are considered "lost for good". Magazine subscriptions and car
insurance are examples of customer retention situations.
• The other category is referred to as customer migrations situations.
In customer migration situations, a customer who does not buy (in a
given period or from a given catalog) is still considered a customer
of the firm because she may very well buy at some point in the
future.
• In customer retention situations, the firm knows when the
relationship is over.
• One of the challenges for firms in customer migration situations is
that the firm may not know when the relationship is over (as far as
the customer is concerned).
CUSTOMER RELATIONSHIPS
• Reduce rates of customer defection – deliver
personalized service .
• Increase longevity of relationships – involve
customers .
• Enhance customer growth potential – cross-sell,
up-sell .
• Make low profit customers more profitable –
terminate, reduce features, pay more.
Five reasons why customers defect ?
1. Some customers are attracted to
competitors.
2. Some customers are bought .
3. Some customers move.
4. Some customers are unintentionally pushed
away .
5. Some customers are intentionally pushed
away
Customer Relationships Reduce Customer
Defection
1. Know the retention rate – define it .
2. Understand causes of defection and ascertain
which can be managed .
3. Estimate profit lost when a customer defects.
4. What will it take (cost) to reduce defections?
5. Listen to customers

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