CUSTOMER LIFETIME VALUE and clv cal.pptx

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1. TOPIC – CUSTOMER LIFETIME VALUE Presented by – Priyanka Rakhecha Subject – Services Marketing MBA – 2 nd Year Marketing Management

2. What is customer lifetime value? Prediction of the net profit attributed to the entire future relationship with a customer (wikipedia) £50 £10 £1000 £100 The most important metric in business analytics (incl. digital) ? Not widely used… (Because it is hard to calculate , esp. in digital) Example: using CLV to acquire customers for a mobile game

3. CUSTOMER LIFETIME VALUE Customer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client . Customer Lifetime Value represents a customer’s value to a company over time. The value is defined as the profit that a customer contributes to the company. 

4. WHY IS CUSTOMER LIFETIME VALUE IMPORTANT? The best customers might be Brand loyal Don’t “shop around” Rich Different from the average 20% of our customers account for 80% of our sales Cu s t om e r ac q uisition costs keep rising It is often more cost effective to spend money retaining existing customers than acquiring new customers

5. Where is customer lifetime value used ? Customer acquisition Customer relationship management – E.g. pay more for a customer than recoup on first purchase, based on likelihood that he / she will make a second / third / forth purchase) 2. Calculate CLV per channel pay more to acquire customers on channels with higher CLV E.g. search engine marketing vs price comparison sites 1. Use average CLV to inform • Maximize customer lifetime value acquisition cost – Instead of maximizing other metrics e.g. utilisation – E.g. email marketing to encourage repurchase Differentiated approach for different customer segments – Spend more cultivating loyalty in the most valuable customers (personalisation) e.g. loyalty schemes Acquire valuable customers Retain valuable customers Increasing sophistication

6. CUSTOMER LIFETIME VALUE CUSTOMER LIFETIME VALUE FORMULA: CLV =   Average Transaction Size x Number of Transactions x Retention Period

7. CUSTOMER LIFETIME VALUE COFFEE SHOP A coffee shop is a perfect starting example for CLV, as it is easy to understand even if you don’t have an extensive business background. Let’s say a local coffee chain with three locations has an average sale of $4 . The typical customer is a local worker who visits two times per week , 50 weeks per year, over an average of five years . CLV = $4 (average sale) x 100 (annual visits) x 5 (years) = $2,000

8. CUSTOMER LIFETIME VALUE For example, let’s say you run a Health Club where customers pay Rs 1000 per month and the average time that a person remains a customer in your club is 3 years. Then the lifetime value of each customer is: Rs 1,000 per month x 12 months x 3 years = Rs 36,000. This means each customer is worth a lifetime value of Rs 36,000.

9. An example: using CLV to drive customer acquisition Mobile game Free to download, monetise by in-app purchases or virtual goods Virtual goods can be bought at any stage of playing the game (i.e. very frequently or never at all) Wide variety across customer base in terms of customer lifetime value Zero value from majority of users. (Who play without ever buying an item.) Small fraction account for disproportionate amount of value Crucial to acquire users from channels where a high proportion of acquisitions have high CLV

10. CUSTOMER LIFETIME VALUE Why Is Customer Lifetime Value Important to Businesses? Why Does It Matter? You Can’t Improve What You Don’t Measure. Make Better Decisions on Customer Acquisition Costs. Improved Forecasting.

11. THANK YOU