Customer lifetime value is a powerful marketing management instrument, which provides essential benefits if applied properly.
Customer Lifetime Value is generally aimed to exploit profit by studying customer behavior and business processes to clarify and aim customers with the greatest possible net value over time. (Johnston, Clark, 2008)
Effective business requires that any company appoints higher priority to the customer value than to the issues of competency. To provide superior value, marketing strategy should directly impact three essential business processes:
- Product Development Management
- Supply Chain Management
- Customer Relationship Management (Lowenstein, 1997)
The aim of the product development management process is to make solutions that consumers need. Supply chain management processes entail the achievement of data contributions and the effectiveness of incorporating these contributions into customer choices. (Johnston, Clark, 2008)
Customer Relationship Management has its derivation in the general standard of marketing. Actually, it is aimed to satisfy customers’ requirements with the best probable alternative in the market. Customer relationship management, as a part of customer lifetime value, goes beyond the transactional exchange and facilitates the marketer to value the customer’s feelings and consuming behavior and tendencies so that the consumer may be offered the products and services before he or she starts demanding them. (Autry, Hill et.al. 2007)
Customer Value Policy
It is necessary to mention, that a successful Customer value policy is probable only by the junction of four important elements. These are people, process, technology and data. Customer data management provides the leads about the likelihood of customer requirements and the technology assists in tracking the features and classification of consumers depending on the previous consumer behavior cases. (Petrick, 2002) The process reorients the customary business replicas to suit the integrative approach of Customer Relationship Management by making Accent on customer lifetime value than a product’s lifetime value. The notion of customer lifetime value helps the market experts to study the cost of acquiring serving and retaining a particular set of customers in the market. (Johnston, Clark, 2008)
Transactional customer relations are regarded to be the lower level of Customer Lifetime Value strategy, and the transition to relational customer orientation is essential, and generally regarded as the next step in expanding information-intensive tactics to assist in producing the types of connections organizational consumer search, to better meet value-grounded anticipations of the business-to-business consumer, to improve long-term faithfulness, and eventually, to create increased income streams and customer productivity. Generally speaking, companies tend to concentrate on either consumer behavior or consumer attitude information, but frequently fail in joining both. Consequently, companies should clearly realize what their consumers do or how they feel, but most still do not how transactional and relational information can be applied to clarify both or the “total” customer relationship. (Schmitt, 2003)
The fact is that the key drivers for a company to state or optimize its Service Management practices for further Customer Lifetime Values are diverse:
- High service prices can be decreased by joining the service and products providing chain.
- Inventory extents of service parts can be decreased, therefore decreasing total inventory expenditures.
- Increase customer satisfaction.
- Define the time perspective over which lifetime value will be measured (e.g., 5 years)
- Define the interest rate to be used when calculating current values
- Define the costs attributable to a consumer
- Sum the income, subtract prices, and take the current value over the particular time period
It is necessary to state that Lifetime Value is generally applied to judge the suitability of the fees of attainment of a consumer. For instance, if a new consumer costs $50 to acquire, and the lifetime value is $60, then the consumer is regarded to be beneficial, and attainment of other similar consumers is necessary. (Johnston, Clark, 2008)
If a corporation clearly understood each consumer’s lifetime assessment, it could maximize its own inherent assessment by increasing the amount, scope and extent of value-creating consumer relationships and minimizing the value-devastating ones. In order to attain that, managers would have to determine how much revenue each customer would generate in the future and subtract the expected costs of acquiring, serving and keeping that customer. (Johnston, Clark, 2008)
It is argued, that in reality, very few corporations can calculate customer lifetime value, making it almost impossible to supervise customer lifetime value. The barricades have to do with the ways corporations are arranged, make choices and preceding information. Actually, there are other ways to realize the inherent value of customers that avoid these obstacles. It is also stated, that the inherent value can be a stepping stone to calculating and managing customer lifetime value in the prospect. (Johnston, Clark, 2008)
In the conclusion, it is necessary to emphasize, that companies must realize that customer value is more than just a tool for communicating with customers. Marketing-oriented Customer Related Management can offer useful information to the Product Development Management, thereby delivering more assessment to the company and to the customer. The Customer Value itself is the incorporation of essential marketing elements, which should be properly balanced.
Autry, C. W., Hill, D. J., & O’Brien, M. (2007). Attitude toward the Customer: A Study of Product Returns Episodes. Journal of Managerial Issues, 19(3), 315.
Johnston, R., Clark, G (2008) “Service Operations Management” Financial Times/ Prentice Hall.
Lowenstein, M. W. (1997). The Customer Loyalty Pyramid. Westport, CT: Quorum Books.
Petrick, J. F. (2002). Development of a Multi-Dimensional Scale for Measuring the Perceived Value of a Service. Journal of Leisure Research, 34(2), 119+.
Ragins, E. J., & Greco, A. J. (2003). Customer Relationship Management and E-Business: More Than a Software Solution. Review of Business, 24(1), 25+.
Schmitt, B. H. (2003). Customer Experience Management: A Revolutionary Approach to Connecting with Your Customers. Hoboken, NJ: John Wiley & Sons.