Where Does Customer Lifetime Value Fit in Your Strategy?

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In The Customer Loyalty Solution, (2003, McGraw Hill), Arthur Middleton Hughes describes how the National Bank of Australia, with 4.5 million customers, used a customer lifetime value profitability assessment as part of a system that identified $4 billion in growth opportunities and increased its sales close rate by five times. It’s an example of how CLV can be part of your corporate strategy&#8212specifically, your marketing strategy.

Good corporate strategy makes for a healthy company, assessed in the company’s reputation among customers, shareholders, government regulators and its employees. Financial strategy focuses on ensuring viable cash flow for the business in the present and foreseeable future. Marketing strategy has a shorter-term horizon and focuses on acquiring and keeping customers. This is where CLV fits, and banks are particularly adept at this.

Here’s how it played out at the National Bank of Australia. The company assigned a vice president to manage each of six customer segments: custom business, packaged business, agribusiness, private, premium and retail.



Customers were assigned to each segment by their profitability (CLV) and their financial needs assessment. The company identified 200 sub-segments within the six segments for targeted marketing, based on events in a customer’s transaction history. Once a month, customers were scored in two areas: their likelihood to purchase various products and their likelihood to respond to various types of offers. These customer purchase leads were then assigned to a sales channel: ATM, email, mail, call center, bank branch or personal bankers. And they were tracked in terms of how and when the offered presented and the customer response to it. Each new response was incorporated in the system to increase the accuracy of the new prediction.

In the 19 months of the bank’s “year,” the system generated 1.57 million leads, and $4.4 billion in new loans were closed. In the second year, sales of premium bank products increased by 25 percent. Financial modeling and prediction together with rigorous tracking of actions and customer response created a formidable marketing engine for the National Bank of Australia.


Customer count


When you’re evaluating alternative marketing strategies for a group of customers, customer lifetime value is extremely valuable for understanding the return on investment. In financial strategy, investment and cash flow options are evaluated through the net present value technique to make future cash flow comparable with your current cash flow (by discounting for inflation and the time value of money). CLV uses the same technique as net present value—but with a twist: CLV uses expected value to take into account the probability that you’ll lose customers over time.


Use CLV to improve marketing strategy by:
  • Proactively forecasting revenue over purchasing lifecycle
  • Monitoring customer response to decisions on price, service and quality
  • Rigorously managing activity costs

Do not use it to justify one-off technology purchase decisions.


The most conspicuously inappropriate use of CLV is to justify investments in CRM technology (“Look at the great NPV!”) without highlighting the critical human follow-through and learning required to achieve the CLV projections. Misapplied, CLV has been used to justify CRM technology projects that appeared to increase profits simply through the acquisition of technology. Technology alone cannot deliver financial success. Many have learned this through unfortunate first-hand experience of acquiring CRM software.

The profit margin that a business earns can be dependent on how well you maximize the profitability of each of your customer segments through smart use of sales channels and service delivery. Contact centers are emerging as one of the points of margin differentiation for telecom and mobile service providers. Don’t apply CLV too early. First, do detailed CLV calculations to narrow your area of focus.




CLV at Dell


When Dell Computer started in the business, PCs were sold on product features. Dell’s leaders looked to their core competence: an instinct and capability to provide what customers wanted and valued but were not getting. They focused on improving the purchase, delivery and service experience. Where its competition took weeks to deliver, Dell took four days. Customers could specify built-to-order PCs. And because building to order meant the company could have lower inventories, it saved working capital cost.

Dell only applied CLV later in marketing campaigns to determine which customers to make what offers to. CLV helped Dell anticipate needs in its customers’ purchase lifecycle for higher service requirements in the first year of purchase, an additional service that is rolled into the purchase price of many of the company’s PCs.


How do you calculate CLV?
In a nutshell:
  1. Estimate revenue and costs over the purchasing lifecycle of the customer.
  2. Reduce the numbers by the probability that the customer will leave in each future year
  3. Reduce future year net profits to today’s dollars by the discount factor that incorporates inflation and the cost of money

For more details, see my article,


A Primer: Here’s How To Calculate Customer Lifetime Value


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Whenever you can distill a great deal of information like that which comprises a relationship (a series of transactions and interactions) into one number that’s part of a useful index like profit, you have a better handle on what’s going on. That’s because you will be in a position to see purchasing and profitability patterns for groups of customers. If you didn’t already know the characteristics of such customers, this is valuable information for acquiring and retaining customers in such a way as to drive up profitability.

A customer is making a series of purchase decisions, and the outcome of the purchase decision depends on what the customers see, want, feel, need and expect at the point at which they make their decision. Constantly reviewing and re-calculating CLV allows you to find profit opportunities in the dynamic journey that your customer is traversing.



Banks, telecom, airlines and other industries in flux are finding that the balancing act of growing profitably requires constant innovation in value creation. Calculating CLV sends signals back to them on how they are doing, whether they are tracking to plans and expectations with their sales and marketing strategy to increase the number of profitable customers.

As the song goes,


You’ve gotta accentuate the positive

Eliminate the negative

Latch on to the affirmative

Don’t mess with Mister In-Between

(Johnny Mercer, 1944)

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