Customer lifetime value ppttt


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Customer lifetime value ppttt

  2. 2. • Customer is the greatest asset to any business, specifically, the current customers who will remain as customer in future also. Its common knowledge that the customer is the basic reason for the company's existence. The importance of customer is known to everyone in business, but what's surprising is the fact that many business do not know the value of the customer in terms of Rupees
  3. 3. • CRM is nothing short of a strategy which places CUSTOMERS in a pivotal position for the organization. It changes the focus of the organization to better exploit its key relationship with customers, to significant advantage for BOTH parties. • However, embracing Customer Relationship Management is often easier said than done. Of course it requires commitment, but also needs an understanding and knowledge of the concepts and successful and proven practices. Equally, a framework of tools can prove to be invaluable in terms of ensuring accuracy and saving time/resources.
  4. 4. CRM PROCESS • Step 1: Clearly Identify Your Target Market & Value Proposition • Step 2: Define Your Overall CRM Strategy and Consider Costs • Step 3: Define How Each Customer Type Will Be Handled • Step 4: Select a CRM Software to Measure Performance • Step 5: Continue to Re-engage Customers
  5. 5. CRM Software From small enterprises to multinational corporations, any business that maintains regular interaction with customers benefit from a well organized CRM system. CRM includes all business processes in sales, marketing, and service that touch the customer. With CRM software tools, an enterprise might build a database about its customers that describes relationships in sufficient detail so that management, salespeople, people providing service and even the customer can access information, match customer needs with product plans and offerings, remind customers of service requirements, check payment histories and so on.
  6. 6. How Salespeople Use Customer Information • To improve customer strategies • To grow, retain, or win customers • To maximize customer lifetime value (CLV) • Data about the customer is the fuel to the CLV engine
  7. 7. Customer Lifetime Value(CLV) • Customer Lifetime Value (CLV) a marketing metric that projects the value of a customer over the entire history of that customer's relationship with a company. It is the current value of the likely future income flow generated by an individual purchaser. • . It seeks to maximize profit by analyzing customer behavior and business cycles to identify and target customers with the greatest potential net value over time. A Profitable customer is one that overtime yields a revenue system that exceeds by an acceptable amount of the company's cost stream of attracting, selling and servicing that customer over time.
  8. 8. Calculating your Customer Lifetime Value: • To calculate CLV, you need to know three things, First, the estimated annual profits from that customer. Second, the duration of the business relationship with that customer. Third, the current discount rate. If you do not have the actual figures, then you will have to estimate. As the Customer Lifetime Value will have a significant impact on your bottom line, my advice is that you be prudent and conservative in your estimation.
  9. 9. • Let's say you have a customer who generates Rs3000 profit every year for next 10 years . If the current discount rate is 8%, then the customer life time value will be: CLV = i=10 Si 3000/1.08 i = 20,130.25 CLV = 3000/1.08 + 3000/1.08 2 + 3000/1.08 3 + 3000/1.08 4 + 3000/1.08 2 .... 3000/1.08 10 • This means that the customer is worth Rs 20,130 to you today!!
  10. 10. • Importance of understanding Customer Lifetime Value "Customer lifetime value is not just a number; it is a way of thinking and doing business" • Knowing and fully understanding the customer lifetime value changes the business perspective to a great extent. To begin with, company can use it to estimate the current value of all its customers. By knowing the current value of the customer, you can then segment customers into different categories. Segmenting helps to concentrate more on the profitable customers. For instance, discount brokerage company Charles Schwab answers its best customer's phone calls within 15 seconds while other customers have to wait for as long as 10 minutes to have their calls answered. Once customers are segmented based on profitability, you can tailor your offerings to various segments.
  11. 11. Segmenting Customers • Today, companies around the world are increasingly segmenting their customers in order to increase profitability. Segmenting helps companies to tailor their offerings to each of the segment. One of the common ways of segmentation is based on loyalty & profitability After segmenting customers, companies tailor their offerings, marketing strategies to convert existing customers to become more loyal and more profitable. Segmenting helps companies to allocate their marketing resources based on the customer value. Customer lifetime value give a formalised depiction of a long-term view of the customers and gives a better picture of what the company is going after.
  12. 12. Increasing customer retention. • Traditionally, most marketing theory an practice centers on attracting new customers rather than retaining existing ones. Since acquiring a new customer costs a lot more than retaining one, it is wise to measure customer satisfaction regularly. The key to customer retention is customer satisfaction. A highly satisfied customer stays loyal longer, buys more products or services, pays less attention to competing products or services, is less sensitive to price, offers product or service ideas to you, and costs less to serve than new customers. • To improve customer retention, you need to analyse customer defection. Analysis can start with the internal records such as sales log, point of sale receipts records etc. Next step would be to use market research such as bench marking studies and statistics.?
  13. 13. While analysing customer defection, some basic questions to ask are: • What are the retention norms for our industry? • What is the relationship between retention rates and changes in prices? • Where to lost customers go for the same products or services? • Is there a cyclical pattern for customer defection? • Does defection rate vary by region or sales representative or distributor? • Which company in our industry has the highest retention rate
  14. 14. Reduce customer defection • 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
  15. 15. Five reasons why customers defect 1. Some customers are bought 2. Some customers move 3. Some customers are unintentionally pushed away 4. Some customers are intentionally pushed away 5. Some customers are attracted to competitors
  16. 16. 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 from 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.
  17. 17. 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.)
  18. 18. • In marketing CLV is the present value of the future cash flows attributed to customer realtionships 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 The specific calculation depends on the nature of the customer relationship.
  19. 19. 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).
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. One Customer Relationship Style Does Not Fit All • While price and satisfaction in the product still dominate the customer's view of the seller, a third of them are seeking a greater connection. This third is why it is critical for businesses to refrain from defining their relationships in a monolithic fashion: Every customer views business relationships in individual terms. • Businesses need to realize that they are building different types of relationships with different sorts of customers. Each customer may be unique. However, it is possible to segment customers according to the relationships their behaviors indicate they desire -- and then attempt to craft communications and experiences that mesh with their expressed relationship style.
  24. 24. Customers Want Connection Mitch Lieberman, a noted blogger and vice president of marketing at Sword Ciboodle, has a mantra: "Customers do not want a relationship with your business. They want the benefits a relationship can offer to them.“ Did the customer get what he wanted or needed, and was the process of getting that frictionless -- and, perhaps, a little enjoyable? If the answer to both questions is yes, then the "relationship" is a good one from the customer's perspective.
  25. 25. Three D’s of CRM McKenzie's helps managers put together integrated strategies that embrace customer relationships while helping them become relationship-based enterprises. • Discovery • Dialogue • Discipline
  26. 26. 12 Principles that Drive Profitable Customer Relationships 1. Continuously Learn About Your Customers 2. Handle Different Customers Differently 3. Anticipate Customer Needs 4. . Interact With Customers 5. Focus on Revenue and Retention 6. Increase Value for Your Customers and the Organization 7. Present a Single Face Across Channels
  27. 27. 8. Enable Information 9. Create Business Rules to Drive Decisions 10. Empower Employees with Information and Training 11. Retain the Right Customers 12. Remember That Cultivating Customer Relationships is a Way of Doing Business.
  28. 28. CHALLENGES FOR CRM • Defining Clear Objectives • Appointing a Core CRM Team • Defining the Processes • Managing the Application • Finding the Right Partner • Not knowing how to measure success • No change management process • Inadequate training • Costing Iceberg
  29. 29. REFERENCES