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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$out your com%etitors
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Customer Relationships
Customer Relationship Management (CRM) processof managing information about customers andmanaging all customer touch points
Touch point customer encounters brand, product,personnel
How many bugs are one bug too many?
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Customer Relationships
ramewor! for one"to"one mar!eting
#$ %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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Customer Relationships
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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Customer Relationships
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