Page 290 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 11: CRM Measurements

Self Assessment Notes

Fill in the blanks:
11. Some practitioners call CRM as …………………… because of its complexity.
12. …………………… said, “Knowledge management is not just a matter of managing
information.”

11.6 Customer Lifetime Value

Lifetime Customer Value or Long term Customer Value is a reflection of the possible future
business a company can expect from a loyal customer. This will include not only the repeat
purchases by the customer, but also his family purchases, referral purchases, cross sells, etc. over
a long period of time. It should also consider the future product introductions of he company for
which this loyal customer is a ready prospect.
This adds more dimensions to the exact assessment of the LCV. 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.

In marketing, Customer Lifetime Value (CLV), Lifetime Customer Value (LCV), or Lifetime
Value (LTV) and a new concept of “customer life cycle management” is the present value of the
future cash flows attributed to the customer relationship.
Calculating Lifetime Customer Value (LCV)

There are two kinds of LifeTime Value measurement - absolute and relative. The first is very
difficult to calculate; the second, very easy to calculate and in many ways more powerful than
the first.
The most difficult part of calculating LTV is deciding what a “lifetime” is. LifeTime Value is the
value of the customer over the LifeCycle (if you don’t know what a LifeCycle is, you really
should read the article on LifeCycles before reading this one). Lifetime Value doesn’t exist
without a LifeCycle. We will get into some details on calculating LifeTime Value in a moment,
but first, a clarification.
The LifeTime Value concept has been horribly abused and misunderstood over the last several
years. It is not necessary to figure out an absolute LifeTime Value for a customer or wait “a
lifetime” to find out the value to use the concept in managing customer value. If you are new to
this LifeTime Value stuff and have not tracked the appropriate parameters, or your company is
new and lacks meaningful operating history, you can look for “relative Lifetime Value,” link it
to customer behaviour, and still get leverage from using LTV/LCV in your business model to
manage customer value.

Example: Say, A runs the same ad in two different newsletters and gets response from
both. When I look at these responders, maybe a week later for a content visit or 30 days later for
a purchase, I find a high percentage of repeat visitors or buyers from one newsletter, and a low
percentage from the other.

Repeat behaviour indicates higher LifeTime Value, and predicts future repeat behaviour,
regardless of what the actual monetary LifeTime Value is. I can switch money out of the low
repeat newsletter into the high repeat newsletter and get higher ROI without having to measure
anything but repeat behaviour.

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