Page 295 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT
P. 295
Customer Relationship Management
Notes
Task Ask a businessman, how does he calculate his customer’s satisfaction?
Self Assessment
Fill in the blanks:
13. Measurement frameworks can have three ……………………. that describe them.
14. Full form of CLV is …………………….
15. Customer’s equity has three drivers and they are …………………… , …………………… ,
…………………… equity.
Case Study Customer Lifetime Value: An Example
ompany A came to B co. Pvt. Ltd. losing US $3 million a year and looking to make
changes that would increase revenue, while streamlining operations. By taking a
Ccloser look at some basic numbers, the company was able to suggest some relatively
small, yet significant, changes – resulting in a US $4 million shift in just a year’s time.
We started by dividing out Company A’s revenue based on new customers and returning
customers (by looking at how many customers were invoiced in the prior year). Then we
took an educated guess on the Cost of Goods Sold (COGS), marketing and sales. On those
numbers, the key is not over thinking your calculations, but to come up with a reasonable
estimate. Finally, we noted that Company A had about an 80% renewal rate, meaning the
average customer lasted about 4 or 5 years.
Looking at these numbers, B Co. Pvt. Ltd. could see that Company A was netting about
$8,000 per customer in lifetime value. When the company looked at the expenses for all
the other departments, it was evident how Company A was losing $3 million annually.
But with these numbers in front of us, the company could also layout a plan for Company
A to increase its net margin per customer:
Acquire fewer (5% decrease), more targeted customers, by focusing on regional
sales
Develop deeper customer knowledge and more products, with the goal of increasing
sales by 8%
Decrease cost of goods sold by 5% through more efficient travel and scheduling
support
Shift from a sales model in which everyone sells to all customers, to an account
management model focused on matching sales talent with buyers and products (i.e.
rural accounts v. urban accounts, instead of all accounts in a particular region),
decreasing sales costs by 14%
Decrease overhead costs by 8% through realigning internal cost structures (for
instance, each presentation put together by marketing now had to be paid for by the
particular account, instead of having unlimited access to marketing services)
Contd...
290 LOVELY PROFESSIONAL UNIVERSITY