Preview

Customer Lifetime Value

Better Essays
Open Document
Open Document
1049 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Customer Lifetime Value
Customer Lifetime Value (SMALL BOOK 167-177) * Customer lifetime value (CLV), is the net present value of the cash flows attributed to the relationship with a customer. * The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales. * Two approaches to CLV: * Disaggregate (“spreadsheet”)– Complex and cumbersome, but allows you to build in any assumptions you want and see how they affect the result. * Aggregate (“analytic”) – Makes (often strong) assumptions, hard to see the mechanism. Easy to remember and compute, allows you to focus on the big factors.
BASIC CLV MODEL: ( a.k.a Margin Multiple ) It reflects the proportion of one’s per-customer profit margin you expect to recoup over time. m: profit margin per period r: retention rate i: discount rate

Key Insights | Assumptions | * Retention and loyalty are key to long-term value. * Other factors (e.g., discount rate) only have an impact when retention is high. All the handwringing about what discount rate to use is irrelevant in many real-world situations. * Margin matters, but it is independent of the other factors. * Customer-based costing is important, and often absent. | * Profit margins are constant * Defection rates are stable over time * Discount rates are stable over time * The customer’s lifetime is infinite | * | Implications | * | * It is low when business is risky (i.e., the discount rate is high) and high when retention is high. * If your churn is too high, it’s hard to make money from your customers. * Conversely, loyal customers provide substantial value. * Retention rate typically has a greater impact than discount rate. In other words, marketing actions have a greater impact on CLV than does “financial engineering”. |

EXAMPLE:

A health club is opening a new location and is

You May Also Find These Documents Helpful

  • Satisfactory Essays

    ROSEWOOD HOTELS CLTV

    • 307 Words
    • 7 Pages

    480.17 Discount factor NPV of cash flow NPV of CLTV $461.09 Based on the Customer Lifetime Value (CLV) calculations, there is incremental value when…

    • 307 Words
    • 7 Pages
    Satisfactory Essays
  • Powerful Essays

    The interesting thing that comes out when comparing the lifetime value of Customer and Gross margins for various Segments is that Customer accounts which are acquired by providing 20% rebates although have approx. 40% less gross margin in the initial year but they tend to generate quite a high amount cumulative profit in the long term and the difference is not as high as 40% initial margin. The difference in the Customer Life Time Value for large customers is about 10%.…

    • 1150 Words
    • 5 Pages
    Powerful Essays
  • Powerful Essays

    How to Lose an Account

    • 1337 Words
    • 6 Pages

    In the words of many industry professionals, losing a customer is the absolute worst thing that could happen to our company. This mantra has always stood true, but when we're fighting with competitors for every dollar, customer retention is key.…

    • 1337 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Strategic Plan Part 3

    • 669 Words
    • 3 Pages

    Customer retention, customer satisfaction, and customer value is the foundation of customer value perspective (Pearce & Robinson, 2009). Demary & Sons intends to retain and satisfy customers by…

    • 669 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    3. Taking into account the time value of money and assuming that 100 percent of a customer segment will have experienced attrition once the net present value of annual profits per customer falls below 100, what is the lifetime value to MBC of the following customers?…

    • 671 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    ‘The Heart of your Strategy’ article deals with how an industry can increase its sales in market and get better revenue as compare to its competitive industries. In this article the customer loyalty factor has been considered as one of the strategy of business. Customer Loyalty deals with giving customers what they actually want in their product and how a company can fulfill the customers’ needs by giving them the product they want. If any company gains the customer loyalty then that makes their sales, profits, revenue etc. at a level that they can compete or beat their competitors who also has the same product. Coca-Cola is most common example of customer loyalty as their products gains the customer trust and loyalty which has brought them to the top of the market unlike their competitors like Pepsi. Even though Pepsi has the same kind of products that Coca-Cola (caffeinated soda) their sales are not as high because Coca-Cola has a higher customer loyalty then Pepsi. Once a company loses the customer loyalty it becomes very difficult to gain that loyalty again.…

    • 506 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Hubspot Case

    • 441 Words
    • 2 Pages

    The attached exhibit breaks down the LTV value for different customer segments based on their churn and revenue generation. Across all the segments, small B2B businesses have lowest…

    • 441 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    We are a multispecialty surgery center that does four hundred cases a month. The patients expect a certain level of customer service. The lifetime value of the customer, which is the present value stream of future profits expected over a customers lifetime of purchases (Contemporary Selling p.62). This means that…

    • 1223 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Roughly translated, customer lifetime value is the projected profits that a customer will generate during their lifetime. We used the case data to segment Starbucks customers into three distinct categories of unsatisfied, satisfied and highly satisfied. Fortunately, the case provided some useful data to make our initial assumptions about the stream of expected revenues from each category.…

    • 2288 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    A customer profitability analysis is an evaluation process that focuses on assigning costs and revenues to segments of the customer base, instead of assigning revenues and costs to the actual products, or the units or departments that compose the corporate structure of the producer. Approaching profitability from this angle can sometimes provide valuable insights into how each step of the process of designing, manufacturing, and ultimately selling a good or service incurs cost and generates revenue. Many businesses use a customer profitability analysis as a means of streamlining processes so they provide the highest degree of efficiency and return, while generating the lowest degree of cost.…

    • 479 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Red Hat Case

    • 765 Words
    • 4 Pages

    Customer value is a strategic weapon in attracting and retaining customers. Delivering superior customer value has become a matter of ongoing concern in building and sustaining competitive advantage by driving customer-relationship-management performance.…

    • 765 Words
    • 4 Pages
    Better Essays
  • Satisfactory Essays

    Hubspot 2.0 Briefing

    • 435 Words
    • 2 Pages

    Note, consumer lifetime in months = 1/churn rate. There is not one right answer. In other words,…

    • 435 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Power of Pricing

    • 10164 Words
    • 41 Pages

    According to several Wharton marketing professors who have studied this issue, there is no easy answer, despite new and increasingly sophisticated efforts to measure what is called “Customer Lifetime Value” (CLV) – the present value of the likely future income stream generated by an individual purchaser.…

    • 10164 Words
    • 41 Pages
    Good Essays
  • Better Essays

    CLV tutorial

    • 1803 Words
    • 10 Pages

    the churn rate in the segment, and the costs to acquire a new customer and…

    • 1803 Words
    • 10 Pages
    Better Essays
  • Good Essays

    Figure 6-1 illustrates how either low cost of purchase or high performance benefits can create customer value and how customer value can be mapped. Businesses that have either of these two sources of competitive advantage find it easier to attract and retain customers. It is important to keep in mind, however, that the two sources of customer value attract two different kinds of customers.…

    • 301 Words
    • 2 Pages
    Good Essays