Customer Lifetime Value

Customer Lifetime Value (CLV ) is generally the contribution margin that a customer realized during his entire " customer life", discounted to the time of observation.

It is a measure of the business. In addition to historical sales and the expected future revenue is taken into account ( potential customers ).

In determining the CLV of potential customers value from the actual customer value must be distinguished. In the possible customer value, the total expenditure of a customer, even those considered when competitors in a particular area, while the actual CLV only considers the issues, which makes the buyer at their own company.

Introduction

The key questions to evaluate new products and services, new programs and new customer service activities are not by Robert C. Blattberg and John Deighton:

  • " Will it attract new customers? " - "Will gain new customers? "
  • " Will it increase enlarge our retention rates? " - "Will existing customers be kept? "

The key question should in their opinion rather be:

  • " Will it increase enlarge our customer equity? " - " If the customer value be increased for us?"

Because of customer value is the prerequisite for shareholder value. Marketing activities are carried out on the basis of the importance of the customer for the company to bind particularly profitable customer longer in itself. But knowing the current and future earnings or earnings potential of each customer is necessary.

It (eg ABC analysis ) and goals are for quite some time customer ratings determined on the basis of turnover, but this takes too short, since no revenue is for a company with a client is crucial, but the profit which can be generated from this customer relationship. In the "mom and pop shop " the seller knew or could assess each customer and its customer value. This is at the present time no longer possible in part a few thousand anonymous customer relationships.

The aim is therefore to identify which methods there is to determine the customer value, and to perform a classification of these methods. The attractiveness and the potential for customers is an important part of the customer reviews.

In the method for quantifying qualitative properties, the explanation of known models (eg Kano model) and to the detailed description of some methods for determining customer value is not specified.

Greatly simplified calculation: Example car

Here, the customer lifetime value of customers is estimated with an average age of 45 years: The manufacturer expects that customers will average a new car with a contribution margin of ca buy every four years, € 15,000, as well as additional services with gross margins of approximately 500, - € / year. The business relationship is thereby estimated at 20 years. Thus, an average driver has a customer value of 77.500, - € ( without discounting to the present day ).

However, it is also possible to extend the model of customer lifetime values ​​and involve not only quantitative variables, such as the cost of acquisition, the attributable costs and the revenue and qualitative variables such as the recommendation potential and the cross-selling potential with.

Extended model: four- part values ​​of Customer Lifetime Value

  • Base business (sum of expected cash inflows and outflows ) weighting eg 50%
  • Expansion potential (sum of expected cash inflows and outflows ) G, for example, 25 %
  • Reference potential (sum of expected cash inflows and outflows ) G, for example, 15 %
  • Learning potential (sum of expected cash inflows and outflows ) G, for example, 10%

First, a weighting of the different areas must be done: for example: base business could be weighted by 50 percent because it is very important from a management perspective. 25 percent could then be placed on the expansion potential, etc.

Then the expected gains in monetary units are allocated on today discounted ( NPV ) and the respective customers in the field. Most often this is done using approximate income classes and classification in very attractive to very unattractive. Assigning the number 10 ( very attractive) to the customer A in the range base business would mean that each year approximately 100,000 euros profit are forecast in the base business from clients A, which we assess as very attractive. At the customer B can then, for example, the expansion potential of 5 ( 50,000 per year) can be accepted since you got information that this company grows, or consumers that incomes will rise by a specific occupation, etc. The formation of indicators for such forecasts and the resulting correct derivation of reviews of the potential is the real challenge of this calculation.

Customer Lifetime Value and Marketing Mix

It is also possible by means of this customer evaluation form to allocate costs and revenues each phase and thus use of the instruments of the marketing mix (product, communication, price, distribution ) accordingly. The individual phases of the customer lifecycle are:

  • Initiation ( Persuasion, stimulation )
  • Socialization ( acclimatization )
  • Penetration phase (cross selling, individualization)
  • Maturity stage ( switching barriers, increasing efficiency )
  • Crisis phase ( correcting errors, Reparation)
  • (Wait for Persuasion, stimulation, abstinence phase) phase separation

Advantages of the CLV

By theoretically possible assignment of the customer in one of the six different phases, it is easily possible to tailor the marketing measures accordingly to the customers and their current needs.

Criticism of the CLV concept

The method of the Customer Lifetime Values ​​poses the fundamental problem of prediction uncertainty in itself. For one, it is difficult to estimate the expected duration of a customer relationship, on the other hand, it is even more difficult to put the bill adequately customer-related inputs and outflows based. Therefore, the model of the CLV is, despite its theoretically good suitability in practice hardly applicable when no transaction-related data are available ( purchase history ).

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