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  1. 1. Customer Lifetime Value Marketing Muhammad Nawaz Khan&Gul
  2. 2. Customer Lifetime Value Marketing <ul><li>In Marketing </li></ul><ul><li>customer lifetime value (CLV) </li></ul><ul><li>lifetime customer value (LCV) </li></ul><ul><li>lifetime value (LTV) </li></ul><ul><li>&quot;customer life cycle management&quot; </li></ul><ul><li>is the Emerging concept </li></ul>
  3. 3. LTV Marketing <ul><li>LifeTime Value is the value of the customer over the Life Cycle . Lifetime Value doesn't exist without a LifeCycle. </li></ul><ul><li>The CLV measures the profit streams of a customer across the entire customer life cycle. </li></ul>
  4. 4. Importance <ul><li>It represents how much each customer is worth in monetary terms. </li></ul><ul><li>How much a marketing department should spend to acquire each customer. </li></ul><ul><li>Difficult to make accurate calculations of CLV due to the complexity and uncertainty surrounding customer relationships. </li></ul>
  5. 5. The Components of CLV <ul><li>Retention rate </li></ul><ul><li>Revenue </li></ul><ul><li>Costs </li></ul>
  6. 6. The Components of CLV <ul><li>Retention Rate </li></ul><ul><li>It the probability that an individual customer remains loyal to a </li></ul><ul><li>particular supplier and keeps yielding expected revenue as well as costs within a fixed </li></ul><ul><li>period of time. </li></ul>
  7. 7. The Components of CLV <ul><li>Determinants of Customer Retention Rate </li></ul><ul><li>  customer satisfaction, switching barriers, variety-seeking behavior, </li></ul><ul><li>and attractiveness of alternatives ( Peter  1999, pp.105 ff.;  Jones/Sasser  1995). Causal analyses </li></ul>
  8. 8. The Components of CLV <ul><li>Revenue </li></ul><ul><li>Autonomous revenue </li></ul><ul><li>Up selling revenue </li></ul><ul><li>Cross selling revenue </li></ul><ul><li>Contribution margins </li></ul>
  9. 9. The Components of CLV <ul><li>Autonomous revenue </li></ul><ul><li>That are only affected by standard marketing measures such as </li></ul><ul><li>TV advertising, i. e. basic revenue not including targeted measures. </li></ul><ul><li>It is usually calculated by means of traditional procedures of demand forecast </li></ul>
  10. 10. The Components of CLV <ul><li>Up selling revenue </li></ul><ul><li>Is yielded by the additional selling of the same product as a </li></ul><ul><li>increased purchase frequency and intensity in long-life relationships </li></ul><ul><li>(quantity effect, i.e. higher purchase amount per transaction and more transactions per period). </li></ul>
  11. 11. The Components of CLV <ul><li>Contribution Margin </li></ul><ul><li>Resulting from referral activities of existing customers. </li></ul>
  12. 12. The Components of CLV <ul><li>Cross Selling </li></ul><ul><li>selling of complementary products or product categories respectively which have not been bought from the vendor </li></ul><ul><li>The selling of a life insurance to an automobile insurance customer. </li></ul>
  13. 13. The Components of CLV <ul><li>Cost </li></ul><ul><li>The basic methods for predicting customer costs are those which are commonly used </li></ul><ul><li>in product-related accounting </li></ul>
  14. 14. <ul><li>Acquisition costs </li></ul><ul><li>The cost associated with acquiring a new customer </li></ul><ul><li>Customer acquisition cost is calculated by dividing total acquisition expenses by total new customers </li></ul>
  15. 15. The Components of CLV <ul><li>Marketing costs </li></ul><ul><li>Represent costs of customer retention and development. </li></ul><ul><li>They comprise all marketing measures which are aimed at an improvement of customer profitability </li></ul><ul><li>(Promotional expenditures and soliciting, mailing catalogues or sending personalized greeting cards) </li></ul>
  16. 16. The Components of CLV <ul><li>Sales costs </li></ul><ul><li>Include both the production costs of the goods sold and all costs of serving </li></ul><ul><li>The customer, including the cost of order procession, handling, warehousing, and shipping. </li></ul>
  17. 17. Customer Life Cycles <ul><li>Customer behavior changes over time. </li></ul><ul><li>These changes over time are known as the customer LifeCycle </li></ul><ul><li>The LifeCycle is used to calculate LifeTime Value. Without knowing the LifeCycle, it's impossible to find LifeTime Value. </li></ul>
  18. 18. Another Challenge to Calculate LTV <ul><li>Unavilability of data </li></ul><ul><li>Average unit returned costs in terms of overhead </li></ul><ul><li>Average number of customer service calls per unit shipped </li></ul><ul><li>what the calls cost per customer </li></ul>
  19. 19. <ul><li>Calculation Models </li></ul>
  20. 20. 1)Discount rate <ul><li> The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate. </li></ul>
  21. 21. 2)Churn rate <ul><li>The percentage of customers who end their relationship with a company in a given period. </li></ul>
  22. 22. 3)Retention cost <ul><li>The amount of money a company has to spend in a given period to retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc. </li></ul>
  23. 23. 4)Periodic Revenue <ul><li>The amount of revenue collected from a customer in the period. </li></ul><ul><li>(per month or per quarter) </li></ul>
  24. 24. Customer Retention <ul><li>Acquiring customers important </li></ul><ul><li>Customer retention over time and profitability & growth. </li></ul><ul><li>Depends on service quality and customer satisfaction. </li></ul><ul><li>Depends on the ability of the organization to encourage customers to complain and then recover when things go wrong. </li></ul>
  25. 25. Reasons for customer Switching <ul><ul><li>Pricing  (High price, unfair pricing, deceptive pricing) </li></ul></ul><ul><ul><li>Inconvenience  (Wait for service, wait for appointment) </li></ul></ul><ul><ul><li>Core service failure  (Service mistakes, Billing errors) </li></ul></ul><ul><ul><li>Service encounter failure  (Uncaring, impolite, unresponsive behavior) </li></ul></ul>
  26. 26. <ul><ul><li>Response to service failure  (Negative response,  </li></ul></ul><ul><ul><li>no response, reluctant response) </li></ul></ul><ul><ul><li>Competition (Found better service) </li></ul></ul><ul><ul><li>Ethical problem  (Cheating, Unsafe) </li></ul></ul><ul><ul><li>Involuntary switching (customer moved, provider closed) </li></ul></ul>
  27. 27. Strategies for Customer Retention <ul><li>Accessibility : Customer should know how to complain. As a rule of thumb, the more formal the system for lodging complaints, the less accessible it is to customers. </li></ul><ul><li>Responsiveness: Complaints need to be dealt quickly. The quicker the complaints are dealt with, the higher the customer satisfaction. </li></ul>
  28. 28. <ul><li>Customer-focused approach: A service provider who adopts customer-focused approach, invites complaints and indicates commitment of resolving complaints by its words and actions in all fairness. </li></ul>
  29. 29. <ul><li>Accountability: Someone in the organization has to take responsibility for complaint handling. </li></ul><ul><li>Continuous Improvement : This is about looking at the root causes and fixing them. </li></ul>
  30. 30. What is CRM ? The process includes collecting customer data, analyzing this data to make decisions which helps to make new customers and satisfy the existing ones.
  31. 31. Evolution <ul><li>Initially, there were Door-to-Door sales forces to approach the customers. </li></ul><ul><li>Then, Mass marketing replaced the intimacy of a direct sales force. </li></ul><ul><li>Later, Targeted marketing evolved. Use of direct mail and telemarketing. </li></ul><ul><li>Latest is Customer Relationship Management (CRM), the next step in Evolution. A concept supported by latest technologies. </li></ul>
  32. 32. LTV & CRM <ul><li>The primary purpose of any business is to win and keep customers. Its competitors also seek to do the same. Most successful firms have developed capabilities for attracting customers through their marketing programs. But they have shown mixed results when it comes to retaining these customers. </li></ul>
  33. 33. LTV & CRM <ul><li>Customer Relationship Management helps businesses in successfully implementing strategies aimed at winning and retaining customers profitably. It is also helping businesses shift from a short-term transaction based mode of operation in their interactions with customers to a long-term relationship mode. </li></ul>
  34. 34. Measuring the effect of new CRM strategies and tactics on L TV <ul><li>Slow day rewards </li></ul><ul><li>Rewards for large baskets </li></ul><ul><li>Customer specific pricing: card members get lower prices </li></ul><ul><li>Rewards for frequency </li></ul>
  35. 35. <ul><li>Personal recognition & relationship with a newsletter </li></ul><ul><li>Campaigns to increase card usage </li></ul><ul><li>Free ice cream on customer’s birthdays </li></ul><ul><li>Coupons to encourage secondary shoppers to become regulars </li></ul>
  36. 36. Thank You