how to manage customer

1. Presented by
Bhumit Kothari

2. DEFINITION
It encompasses all the systems, processes and
applications needed to manage the customer
relationship.

3. Two sides of Customer Management
Customer value Customer lifetime value
Star customer
Lost causes
Free rider
Vulnerable customer

4. Customer lifetime value-CLV
Definition
Present value of all future streams of profit that an
Individual customer Generates over the life of his/her
business with the firm
Clv is based on profit not on revenue specifically it is based
on contribution

5. Uses of CLV in organization
It has maximum benefit
It provides organization to segment its customer base
customer’s lifetime value is not static
It helps managers to make investment decision

6. One of the way to calculate CLV
GC=yearly gross contribution per customer
M=retention costs per customer per year
n=horizon in years
d=yearly discount rate r=yearly retention rate

7. Annual profit per customer($)
120
100
80
60
40
20
0
-20
-40
-60
Profit pattern
1 5 8
Age of customer account
120
100
80
60
40
20
0
0 2 3 4 5 6 7 8 9
Age of customer account
2 3 4 6 7 9
0 1
Retention pattern
Customer accounts remaining
(in years)

8. Annual discount =10%
Clv = ($42)(0.82)
(1+0.1)
+ ($66)(0.76)
(1+0.1) 2
+...
1st term equation is profit value generated
from customer for first year
2nd term equation is profit value generated
from customer for second year

9. Simplified customer lifetime value
clv = r
1+i-r
Retention probability Discount rate

10. Marketing program should affect three drivers of
CLV
Customer’s acquisition
Customer’s retention
Customer’s development

11. Customer’s acquisition
Use average clv to inform acquisition cost
e.g.: pay more for a customer than re-coup on first
picture based on that he/she will make 2/3/4
purchase
Pay more to acquire customers on channel
with higher clv

12. How organization acquire customer’s
Increase market price
Increase marketing investment
Increase effectiveness of acquisition
Offer discount and incentives
Generate positive word of mouth

13. Importance of customer retention
Diagnose the reason for defection
Design an early detection system to predict
defectors
Create program to target defectors

14. Customer development
Share wallet
Cross–selling & up selling
Redefining the business

15. Value equity
Brand equity
Retention equity
The value of product or services provided
by the company
Value of brand ,above his /her objective
value
The tendency of customer to stick with
the brand
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