What is the lifetime value of customers, and how can marketers maximize it ?
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Maximizing customer lifetime value (CLV) focuses on attracting and retaining profitable customers, with the potential for significant profit by 'firing' the least profitable ones. Companies should conduct customer profit analysis using activity-based costing (ABC) to accurately measure costs and allocate resources effectively. CLV serves as a framework for long-term investment planning, with estimations typically based over a 3-5 year timeframe.
What is the lifetime value of customers, and how can marketers maximize it ?
- 2. Marketing is the art of attracting and keeping profitable customers
- 3. Interesting numbers: 80 Cr. would be top 20 profitable customers They may contribute to up 300 Cr But the least 10 profitable customers causes up to 100 Cr loss. The implication being company could profit “firing” least profitable customers. Out of 100 customers., If company makes a profit of 100 Cr
- 4. Profitable Customer Customer lifetime revenue stream > Company lifetime cost stream
- 5. C1 C2 C3 P1 + + + High profitable product P2 + Profitable product P3 - - Unprofitable product P4 - Highly unprofitable product High profit customer Mixed-bag Customer Losing Customer P – Product C-Customer
- 6. Customer Profit Analysis (CPA) is best conducted with activity-based costing (ABC) With ABC, the costs includes not only the making and delivering costs, but all the company’s resources that go into serving the customer Both variable and overhead costs are back to the customer Companies not measuring their profit right are likely to misallocate resources
- 7. Long-term customer profitability is captured in Customer Lifetime Value (CLV) CLV helps formulate framework for planning investments and adopt long-term perspectives
- 8. Long-term customer profitability is captured in Customer Lifetime Value (CLV) CLV helps formulate framework for planning investments and adopt long-term perspectives 𝐶𝐿𝑉 = 𝑡=0 𝑇 𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇) (1 + 𝑖) 𝑡 − AC p (t) -- price paid at time t by customer c (t) -- cost of servicing the customer r ( t) -- probability that customer still buys the product AC -- acquisition cost T -- time horizon for the estimate i -- discount rate -
- 9. Long-term customer profitability is captured in Customer Lifetime Value (CLV) CLV helps formulate framework for planning investments and adopt long-term perspectives 𝐶𝐿𝑉 = 𝑡=0 𝑇 𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇) (1 + 𝑖) 𝑡 − AC p (t) -- price paid at time t by customer c (t) -- cost of servicing the customer r ( t) -- probability that customer still buys the product AC -- acquisition cost T -- time horizon for the estimate i -- discount rate -
- 10. Long-term customer profitability is captured in Customer Lifetime Value (CLV) CLV helps formulate framework for planning investments and adopt long-term perspectives 𝐶𝐿𝑉 = 𝑡=0 𝑇 𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇) (1 + 𝑖) 𝑡 − AC p (t) -- price paid at time t by customer c (t) -- cost of servicing the customer r ( t) -- probability that customer still buys the product AC -- acquisition cost T -- time horizon for the estimate i -- discount rate - The key decision is the time frame for estimating CLV Typically, 3-5 years.
- 11. Special thanks • https://www.flickr.com/photos/kimberlynmerrill/ • https://www.flickr.com/photos/griddlecakes/
- 12. Thank you!
- 13. Created by : Ashwin Sasikumar Govt. Model Engineering College, Kochi Prof. Sameer Mathur IIM Lucknow www.IIMinternship.com During an internship under :