This document discusses customer relationship management and customer lifetime value. It identifies four types of customers based on their relationship styles: apostles, terrorists/defectors, mercenaries, and hostages. It also examines how to segment customers based on loyalty and profitability into butterflies, strangers, barnacles, and true friends. The document then defines customer value and the various types of value like economic, functional and psychological value. Finally, it discusses customer lifetime value, the factors that influence it, and how to calculate it.

1. Analytical
CRM

2. CUSTOMERS ARE VALUE
MAXIMISERS AND RISK MINIMISERS

3. Relationship styles of
customers
Jones and Sasser (1995) in ‘Why
satisfied customer defect’ published in
HBR mentioned different customer
behaves
 Apostels:-
i) Completely satisfied
ii) Keep returning to the company
iii) Experience exceeds their
expectations
iv) Sahre their strong feelings with

4.  Terrorists/Defectors:-
i) More than dissatisfied, quite
dissatisfied and neutral
ii) Could be highly satisfied customers
who have encountered failures
iii) In service recovery these customers’
needs to be redressed to convert
them into highly satisfied customers

5.  Mercenaries:-
i) May be completely satisfied but
exhibits no loyalty
ii) Expensive to acquire and quick to
depart
iii) Chase low prices, buy on impulse,
pursue fashion trends or seek
change for the sake of change

6.  Hostages:-
i) Customers of the companies
operating in monopolistic
environment
ii) Habituate to a particular brand
iii) Demonstrate inertia in brand
switching
iv) Accept the worst offer of the
company

8. Reexamining Customer
Segmentation
 Not all customers are equal
 Loyalty of customers is linked to
profitability through:
i) Length of relationship
ii) Repurchase intent, or
iii) Recommendations to others

9. Linking profitability and loyalty
 Butterflies
 good fit between customer’s offering
and customer’s needs
 high profit potential
• Strangers
 little fit between customer’s offering
and customer’s needs
 lowest profit potential

10. • Barnacles
 limited fit between customer’s offering
and customer’s needs
 low profit potential
• True friends
 good fit between customer’s offering
and customer’s needs
 highest profit potential

12. Customer Value: Concept and
characteristics
 It is the customer’s perception of what
outcome he expects in a specific use
situation with the help of a product
offering in order to accomplish a
desired purpose
 Value is customer-defined
 Customers differ in who they are, what
outcomes they seek, and what value
they place on different benefits of an
offering

13.  Value is opaque
 Value is contextual
 Value is multidimensional
 Value is a trade-off
 Value is relative
 Value is mindset

14. Types of Customer Value
 Three roles customers play- user,
payer and buyer
 Users seek performance, social and
emotional value
 Payers want price value and credit
and financing values
 Buyers look for service value and
convenience and personalization
value

15.  Customers derive value from three
sources – economic, functional and
psychological
Economic
Value
Psychological
Value
Functional
Value

16.  Economic Value: Net monetary
advantage from using a product
versus its alternatives over the life of
the product
 Functional Value: Value provided by
the performance features of a product
 Psychological Value: Focuses on
intangibles such as brand names,
images and associations with a certain
brand

17. Other values
• Choice based value: choices available
to customer in terms of dealing with the
company, payment for purchase etc.
• Employee based value: providing value
people e.g. Max Life Insurance
• Information value: providing customers
with more information
• Association value: value derived from
being associated with a certain service
provider
• Relationship value: when firm makes
its customers feel better about dealing
with it

18.  Customer unique value: value is
created when firms treat them as
individuals
 Experience value: exchange of stimuli,
information and emotions between the
company and the customer
 Product-for-price value: customers
who equate value with price
 Access or convenience value: value is
created when firms make it easy for
customers to access their products and
servicess

19. Customer Lifetime Value
(CLTV)
Dimensions
• Duration of ‘customer lifetime’
• Firm’s share of wallet among its
customers
• Firm’s success in terms of frequency
of up and cross-selling to its
customers
• Firm’s costs of acquiring, serving and
retaining its customers

20. What would make a successful CLTV
Method?
 Connect with overall strategy of the
business
 Link with the loyalty that the company seeks
to bring in
 Referrals must be part of the component of
CLTV
 Constant rate of retention and discount not
feasible
 Risk rate should also be associated
 Dynamics of different sectors must be
incorporated
 Customize CLTV for highly volatile sectors
 Link with Loyalty program

21. CLTV calculations
where,
GC= is yearly gross contribution per customer,
M= is the (relevant) retention costs per customer per year
(this formula assumes the retention activities are
paid for each mid year and they only affect those
who were retained in the previous year),
n=is the horizon (in years),
r=is the yearly retention rate,
d=is the yearly discount rate.

22. Applications of CLV
 Allocation of resources
 Customer selection
 Segmentation
 Merger and acquisition
 Customer equity
 Marketing campaigns
 CLV based loyalty program
 Purchase sequence analysis