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Presented by 
Bhumit Kothari
DEFINITION 
It encompasses all the systems, processes and 
applications needed to manage the customer 
relationship.
Two sides of Customer Management 
Customer value Customer lifetime value 
Star customer 
Lost causes 
Free rider 
Vulnerable customer
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
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
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
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)
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
Simplified customer lifetime value 
clv = r 
1+i-r 
Retention probability Discount rate
Marketing program should affect three drivers of 
CLV 
Customer’s acquisition 
Customer’s retention 
Customer’s development
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
How organization acquire customer’s 
Increase market price 
Increase marketing investment 
Increase effectiveness of acquisition 
Offer discount and incentives 
Generate positive word of mouth
Importance of customer retention 
Diagnose the reason for defection 
Design an early detection system to predict 
defectors 
Create program to target defectors
Customer development 
Share wallet 
Cross–selling & up selling 
Redefining the business
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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Presentation1 cm

  • 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 — — —