37284249 Customer Lifetime Value

8/12/2019 37284249 Customer Lifetime Value

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Why Satisfaction Is Not Enough

Are your customers satisfied

!o" do you #no"

Could your customers $e more satisfiedWhat are you doing a$out this

What a$out your com%etitors


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Customer Relationships

Customer Relationship Management (CRM) processof managing information about customers andmanaging all customer touch points

Touch point customer encounters brand, product,personnel

How many bugs are one bug too many?


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ramewor! for one"to"one mar!eting

#$ %dentify prospects and customers&$ 'ifferentiate customers with respect to

their needs and their alue to your firm

$ *bsere+interact with indiidual customers

to learn

$ Customi-e products, serices, messages


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Transaction"ocused s$

Relationship"ocused .elling

.elling /lement

&ocus

Performance measures


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Reduce rates of customer defection delierpersonali-ed serice

%ncrease longeity of relationships inolecustomers

/nhance customer growth potential cross"sell, up"sell

Ma!e low profit customers more profitable terminate, reduce features, pay more


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Reduce Customer 'efection

#$ 0now the retention rate define it

&$ 1nderstand causes of defection andascertain which can be managed

$ /stimate profit lost when a customerdefects

$ 2hat will it ta!e (cost) to reducedefections?

3$ 4isten to customers


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56ot eerything that can be counted

counts, and not eerything that countscan be counted7

8lbert /instein


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Customer 4ifetime 9alue

Customer /:uity total of discountedlifetime alues of all the firm;scustomers

9alue customers; assessment of utility


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Congratulations, =ou;re Hired>

Customer 8 urchase @3,AAA

Ma!es # purchase peryear

.igned a 3 year contract

1ses our product in anon"critical support role

roides eBposure for

our product tothousands of potentialcustomers each year

Customer < urchase " @#,AAA

Ma!es # purchase amonth

.igned a & year contract

1ses our product aspart of their !ey sericeto their customers

*nce purchased ourproduct is only seen bythis customer


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How much are you, as a customer,worth oer your college lifetime?

@DA at a pi--a parlor oer your years incollege, not @#A per isit

@#A3A at the hair stylist during your years in

college, not @3 per isit

@#EF& at a gas station during your years incollege, not @#E per fill"up

@AAA at the boo!store oer your years incollege, not @F3 per boo! or @F3 persemester


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How .alespeople 1seCustomer %nformation

To improe customer strategies

To grow, retain, or win customers

To maBimi-e customer lifetime alue(C49)

'ata about the customer is the fuelto

the C49 engine


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4ifetime 9alue 8pproach

2hen salespeople use the information they hae deried andaccessed from eery contact the customer has with the salesorgani-ation, they hae the opportunity to improe their relationshipswith customers and successfully ta!e a lifetime alue approach


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Customer Retention with C49

Customer lifetime alueis applicableonly if salespeople are focused ondeeloping and maintaining

relationships8 daily commitmentfrom both the

salesperson and the sales organi-ation

is re:uired to retain customers


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Customer Relationship Management(CRM)

0ey aspects of a CRM program0nowing how much customers are worth

0nowing where customers are in their lifecycles

0nowing customersG total profit potential


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Em$racing C-V Princi%les

When customers are vie"ed as assets,C-V conce%ts ena$le sales%eo%le toestimate the monetary value of customers

The foundation for %rofita$ility and salessustaina$ility lies in the retentionofcustomers


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8 .hift in ocus

rom ac:uisitionto retention

%t costs less to sere loyal customers thanto ac:uire and sere new ones

The profitability of customers is related tothe length of the relationship with thosecustomers


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EA"&A Rule

&A percentof customers proide

EA percentof the profits


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Customer 4ifetime 9alue (C49)

Customer lifetime alueis the net profitearned from sales to a gien customerduring the time that customer

purchases from the sales organi-ationC49, as a sales focus, is about how the

customer is treated oer time

4ifetime alueis a measure ofcustomer loyalty


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0nowing The Customer 4ifetime 9alue

0nowing the C49 helps salespeopleI 'etermine how much to spend to ac:uire a new customer

'etermine the leel of customer serice needed

'etermine how much focus should be placed on customer

retention .hift focus from one"time sales to the creation of closer

relationships with customers

Retain more customers than their counterparts

0eep their customers for longer periods of time

'eelop more profitable customers

ain referrals from customers with whom solidrelationships eBist


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8uilding 8loc#s of -ifetime Customers

8 Relationshipocus

0nowledgeof Customer4ife Cycles

Customer'elight*er Time

Customer4oyalty

)Schlesinger, Sasser 9 !es#it 2::6)

Clic# on each com%onent


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Conceptuali-ingCustomer 4ifetime 9alue

C49 includes the total financial contribution of acustomer oer the lifetime of that customer;srelationship with a sales company

Calculating a customer;s lifetime alue re:uiresI

0nowledge of the cost of ac:uiringthe customer

Computations of the stream of reenuesforthcomingfrom the customer

Computations of the recurring costs of deliering serice

to that customer


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C-V )The A%%roach+

Recurring

Costs

Recurring

Revenues

Net Margin

Life Span

of Customer

Cumulative

Margin

Acquisition

Cost

Lifetime

Value


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1nderstanding the54ifetime7 art of C49

Comparing R*% to C49

Return on %nestment (R*%)represents a way to measure theimmediateresult of any sales effort

C49 uses relationship capital toassess the long-termalue of thecustomer


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*er the long"term, customer retentionoccurs when salespeople ma!e offersand the customer accepts those offers

oer time


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1nderstanding the59alue7 art of C49

8s salespeople gain an understandingof their customer groups, they canattempt to create aluebyI8c:uiring new customers

%ncreasing reenues

Retaining customers

Reducing recurring costsReducing ac:uisition costs


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1sing C49 Concepts

To determine customer profitability,salespeople can use C49 concepts tosegment customers into groups based

onIReenues generated

%ncluding fre:uency of purchase and behaiors

Costs incurred

roducts purchased, channels used, sericeleels


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Calculating C49

.alespeople can use R*%and C49toguide their sales strategies


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Calculating C49

8nnual Reenue per Customer@&,AAA

8nnual Costs per Customer @#E,AAA

8nnual 6et rofit per Customer @D,AAA8g$ Customer 4ifetime (=ears) D

Total 6et rofits @D,AAA

Customer 8c:uisition Costs @#,AAReturn (C49) @,DAA


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REVENUE Year 1 Year 2 Year

Customers 2!! 1"! 11!

Retention Rate #"$ %#$ #&$

'urc(ases)*ear 1&% 1&+ 2&

Average ,nvoice -2%. -2. -/!.

Spen0ing Rate -/1&%. -%!&. -+2.

otal Revenue -2!. -+12!. -1!12!.

C3SS 4irect 'ercent #!$ %2$ "$

4irect Costs -"2/. -"%"/. -"#!.

Acquisition

Cost 5-1"!!6 -!!. ! !

otal Cost -%12/. -""%". -"#!. 'R37,S

8ross 'rofit -21+%. -""". -/2"!.

4iscount Rate 1&!! 1&2! 1&//

N'V 'rofit -21+%. -2+%. -2+"1.

Cum N'V 'rofit -21+%. -"1"+. -11!.

L,7E,ME VALUE 1!&+. -/&+. -#.

Lifetime Value Calculation


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Customer 4ife Cycle

The series of steps a customer goes throughwhen she considers purchasing, using, andmaintaining loyalty to a product or sericedescribes the customer life cycle


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Three Main oals ofThe Customer 4ife Cycle 8pproach

#$ 8ttain new customers and increase thenumber of relationships

&$ %ncrease the profitability of thoserelationships

$ %ncrease the duration of profitablerelationships


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Creating Customer 4ife Cycles

Collecting and analy-ing data urchase fre:uencyRecency

8erage purchase si-e6umber of customer isits and contacts

oer time


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Customer 'elight

Customer delightoccurs when asalesperson goes aboe and beyondcustomers; eBpectations Tangible and intangible benefits (e$g$,

eBtraordinary serice) beyond the functionalfeatures of a product


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our 2ays to 9iew 4oyalty


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Moneti-ing


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Mar!up and rofit

Mar!upis the actual dollar amount added tothe product;s cost to determine its sellingprice

ross profitis the money aailable to coerthe costs of mar!eting the product, operatingthe business, and profit

6et profitis the money remaining after thecosts of mar!eting and operating thebusiness are paid


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/Bample of Mar!up on .elling rice

in the Channel of 'istribution

;2< Cost from retailer;2< Cost from retailer;0711 = Mar#u% )0?7@ %ercent+;6711 = Selling %rice to "holesaler

;0711 = Mar#u% )0?7@ %ercent+;6711 = Selling %rice to "holesaler

;6711 = Cost from manufacturer>0711 = Mar#u% )0070 %ercent+;:711 = Selling %rice to retailer

;6711 = Cost from manufacturer>0711 = Mar#u% )0070 %ercent+;:711 = Selling %rice to retailer

;:711 = Cost from "holesaler>@711 = Mar#u% )51 %ercent+;2


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Return on %nestment (R*%)

R*%is an additional sum of money eBpected from aninestment oer and aboe the original inestment

8 percentage of the inestment

8 dollar return on inestment or

.aings reali-ed

R3, 9 Net profits 5or savings6 : ,nvestment


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Cost


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aybac! eriod

aybac! periodis the length of time itta!es for the inestment cash outflowto be returned in the form of cash

inflows or saings

'a*;ac< perio0 9 ,nvestment : Savings 5or profits6 per *ear


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Customer 'efections

ie reasons why customers defect

#$ .ome customers are attracted tocompetitors

&$ .ome customers are bought

$ .ome customers moe

$ .ome customers are unintentionally

pushed away

3$ .ome customers are intentionally pushedaway


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1sing C49 toRecoer 4ost Customers

8 !ey to recoering lost customersis forsalespeople to ma!e sure the customers areworth haing bac!, and then to hae a plan

for recoering them 6ot all customers are candidates for a win"bac!

program


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1sing C49 To .elect6ew Customers


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Customer -ifetime Value Creation Program

Planning Strategy Im%lementation

Create cross'functionalteams to achieve valuecreation results

Communicate internally

a$out customer lifetimevalue creation ideas

Agree on realistico$ectives for valuecreation

Create a detailed

im%lementation %lan thatincludes a calendar,resources reBuired, andtools to $e used

Analy.e churn behaviorthe degree to "hichcustomers turn over

ather financial data

a$out customers

Calculate the lifetimevalue of a customer

Segment customers$ased on calculations oflifetime value

Simulate the use of valuecreation levers "ith eachsegment

Create a steeringcommittee to ensureim%lementation

Create a team for each

action %lan develo%ed

-aunch test %rograms and%ilot %rograms

Measure results

Adust %lans according to

results o$tained


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*ther 9alue Creation rograms

.atisfaction sureys

Reactie contacts

.pecial initations9alue"added sericesI

roduct differentiation

.erice differentiation

Relationship differentiation


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our rinciples of .uccessful9alue Creation rograms

#$ The better salespeople !now theircustomers, competitors, and the mar!et, thehigher the li!elihood they will succeed

&$ Today;s customers are less susceptible tothe influence of mar!eting

$ Customi-ing sales programs is only

effectie if such customi-ation is based onreleant information

$ 9alue is much more powerful than image


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Customer relationshipsare based on trust

Customers ealuate products based on eBperiencenot awareness


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The Releance of Customer4ifetime 9alue To .alespeople

4ifetime alue demonstrates that itcosts less to sere loyal customersthan to ac:uire new ones

4ifetime alue faors up"frontpreparation and long"term profitablerelationships

%nformation that helps salespeopleattract and retain customers is aluable


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'iff ti ti 2ithi


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'ifferentiating 2ithinCustomer .tandards

#$ roduct"drien alues arehomogeneous

&$ 8pplications K 9alue"adders

$


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9alue s$ .elling

9alueI The added competitieadantage you bring to yourcustomers$

.ellingI Transacting alue$


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Hardwire =our Customers

ocus on being the best in the world atproiding alue

'eelop clear listening strategies

Hardwire what is learned so all employeescan delier what is sought.hare goalsCollaborate

Customer interaction reputation should betreated Lust li!e a brand


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ocus =our /fforts

Customers 0o

not value

=(at *ou0o not 0o

>ell

=(at *ou

0o >ell

Customers

0o value

S3'

?uil0 capa;ilit*or partners

nee0e0@@

(is is it@

S3'

d t+. i 9 l .i l


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roduct+.erice 9alues .ignalHow a Company .hould erform

?asic 4iscriminator EnergiBer

'os

itiv

e

Nega

tive

Neu

tra

l

Nonnegotia;le *ou

must perform as

>ellD ;ut not muc(

;etter t(ancompetitors

Not applica;leNot applica;le

So >(at@ Retain

value nee0e0 for

ot(er customer

groups

olera;le *ou must

perform no >orseD

;ut not muc( ;etter

t(an competitors

4issatisfier perform

;etter t(an

competitors an0

correct pro;lem soon

Enrager correct

pro;lem at an* costD

capitaliBe on

competitors

enragers

EFciter perform

;etter t(an

competitor

4ifferentiator

perform ;etter t(an

competitors if value

is important tocustomers


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utting .ubstance %nto =our 9alue

Create a values

inventor*

Evaluate *our

values

Anc(or *our

values

Communicate

*our values

Go> 0oes it serve t(e customer@

=(at values are most important to customers@

Go> 0o our values matc( up against

competition@

o >(at)>(om are customer values tie0@

Go> man* anc(or points 0o customers

(ave@

=(at communications intro0uce value@

=(at communications reinforce value@

0 J ti


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0ey Juestions9alue"rofitability Relationship

2hat methods do you use to assessthe impact of alue on profits?

'o your methods proide consistent,

alid and reliable results?2hat factors lead to ariability in the

alue"profitability relationship?

2hat is the optimal spending leel onalue to maBimi-e profitability?

0ey Juestions


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0ey Juestions9alue on the *ffensie

2hat is the optimal spending leel onalue to enhance your reputation?

8re eBpenditures on alue more

effectie than eBpenditures onadertising?

How can your company signal high

alue to customers?

0ey Juestions


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0ey Juestions9alue on the 'efensie

2hat is a loyal customer?2hat is the role of alue in defensie

mar!eting?

How does alue compare in effectienesswith other retention strategies (e$g$, price)2hat leels of alue are needed to retain

customers?

How can turnoer"prone customers beidentified?

0ey Juestions


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0ey Juestions9alue 'riers

2hat customer contact points are mostresponsible for perceptions of alue?

2hat are the !ey alue driers in the

purchase process?2here should inestments be made to

affect alue, purchase, retention and

profits


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9alue is intangible,

therefore it is not easilymeasured


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.uccessful 9alue %nnoation

8ssess the mar!et 5fit76eeds

'emands

%nternal strengthsMatch capabilities

Ris! of high alue

ie 0ey %ssues


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ie 0ey %ssuesRelated to 9alue

#$ Measurement

&$ 9alue creation strategy

$ eople resources

$ Communication

3$ Ris! aerse culture

37284249 Customer Lifetime Value

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