Customer Lifetime Value ( Cltv) 4x2v5s

Customer Lifetime Value ( CLTV) First Phase – Manual selection of criteria Second

Phase

–

Inclusion

of

socio

economic / geo-demographic data Third Phase – Data mining Fourth Phase – LTV based selection Fifth Phase – Yield optimized , multi channel / product segmentation

Dimensions of Customer lifetime value • The duration of the ‘customer lifetime’ • The firms share of wallet among its customers i.e what proportion of the customer’s purchase in the firm’s offering categories are captured by the firms as opposed to its competitors • The firm’s success in of frequency of up and cross selling to its customers so as to increase the levels and monetary value of their purchases over time. • The firm’s cost of acquiring , serving

Successful CLTV methods • Connect with overall strategy of the business • Link with loyalty that the company seeks to bring in • Referrals must be a part of the component of th CLTV  ( true loyalty ) • Constant rate of retention and discount not feasible. • Risk rate should be associated • Dynamics of the different sectors must be incorporated

Calculating CLTV 

LTV = Total revenue – (fixed costs + varialbes costs)

• Identify those customers who are most profitable and focus retention efforts on them • Find more customers who match the profile of the most profitable customer • Calculate which product combination are contributing most to the profit 



CLV = Average transaction value*Frequency of purchase *customer life expectancy

CLTV using Referrals 

Average customer lifetime = 

1 /1-retention rate Customer Lifetime value using referrals 



CLTV = D [(R t -Ct ) + Rf ( Ac –Acr ) ] / ( 1+r ) – Ac

t = tear Rf = Number of referrals generated by each customer each year n = length of customer relationship Ac = Full acquisition costs (for new customer) D = Customer retention rate Acr= Reduced acquisition costs ( existing customer ) R t = Revenues earned from the customer in year ‘t’ C = Cost of servicing customer in year ‘t’ t 



CLTV using Minus Referrals  

CLV = { ∑(Ma - Ca ) r (a-1) /(1+i)a } – AC *N/a-1

 

N= number of years over which the relationship is calculated M a = the margin the customer generates in th year ‘a’ 

Ca = the cost of marketing communication or promotions targeted to the customer in the year ‘a’ r = the retention rate  r (a-1) =survival rate for year ‘a’ i = the interest rate AC = acquisition cost 

CLV to segment customers • Pareto rule ( 20% and 80% ) • Top 20% is ‘maxed out’ using every service that they need, focus on retaining them and should not go on cross selling and up selling • Of the 80% the bottom 20% will be low profit and gives 1% profitability • When the remaining 60% precision is the key to get ROI 

Customer Value Management • Understand what causes customer purchase and repurchase behavior. • Predict the future purchase behavior of customers and potential customers. • Maximize future purchase behavior by managing the predictors.