The world of business today hinges religiously on data but the devil is in the details, hence the need to base operational, tactical and strategic decisions using qualitative or quantitative data respectively.
Running a business on a hunch or autopilot is a suicidal venture. Your competitors will have you for lunch. There always must be a measure or output to inform, verify and gauge if objectives set are met. If not, where must attention be concentrated in addressing deliverables that have not been met? Customer lifetime value (CLV) is one of the core metrics that can aid any business in a quantitative format to enhance customer relationship management activities.
We discussed at length in previous articles how customer retention management must be held in high regard and executed unapologetically by a business yearning to maintain or grow its market share. However, you cannot just retain customers for the sake of it; you ought to hold on to the ones contributing to your income streams or adding value.
It has been proven that it costs less to retain existing customers than to acquire new prospects. Over and above increasing the value of your existing customers through various initiatives to drive growth, establishing what each individual customer brings to the table should be the genesis, hence advocating for CLV. CLV is simply the total worth to a business of a customer over the whole period of their relationship with the business. It is simply how profitable a customer is. Determinants of a successful CLV execution in any business will point to high customer satisfaction, positive customer experience (CX) and multichannel purchasing. An increase in CLV directly impacts customer purchase frequency, spending and retention.
CLV can be useful as it generally galvanises business initiatives such as market segmentation. The most profitable clients of a given segment can be easily identified and further rewarded. Give them more attention and focus for retention purposes. Equally, identification of the least profitable client will inform the business to attempt various ways of increasing the profitability of the client through boosting the purchase frequency through marketing initiatives or giving discounts to offset purchase amount.
A client can be offloaded to lower segments if the cost to serve (CTS) becomes way higher than the revenue generated in the case of private banking segments. Even deciding as a business to determine if it is worth keeping the client is a viable option.
Company resources in terms of human assets are always limited due to number of variables. Therefore, CLV can exist harmoniously with the pareto principle where a few company resources can be dedicated to where most value is likely to be derived. Giving more attention to the customer and deploying the most skilled personnel to a customer’s key contact person should naturally be the benefits awarded to the most profitable customer. It is also not unorthodox to deploy more resources to a least profitable customer but the rationale should be to improve actual profitability as the result.
Customisation of marketing communication is another benefit of CLV as it ultimately becomes clearer to draw a line in deciding about your audience. What do I communicate? To whom do I communicate? How and how often? These pieces of information as outputs of CLV offer more sniper precise endeavours, instead of placing all your clients on the same wavelength.
Other than the fact that it can be costly, imagine how annoying it is to receive a marketing text message or e-mail advertising a product that you are already using! This is money thrown away by a business. Such is strong evidence of a business that really does not know its customers or what they have purchased. In banking, a customer is simply an entry in the database and the customer profile is certainly not known by that business. It is the art and science of knowing your customers and what they offer you as a business that propels businesses to a meteoric rise. CLV is endowed with such advantages.
Espousing the principles of CLV in today’s business world is the way to go. You may have noticed that roles such as business analysts are in high demand. As the world becomes more complex, resources are never enough to deploy and deal with all these complexities. It is only through information and data that you are assured of greater chances of success to operate within confirmed clues for implementation and action. At a strategic level, CLV will inform business executives to develop strategies for acquisition of new customers and retention of existing ones while maintaining profit margins.
LinkedIn: Gomolemo Kololo Manake