what is the lifetime value of customers, and how can marketers maximize it ?

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Maximizing Customer Lifetime Value

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Maximizing Customer Lifetime Value

Marketing is the art of attracting and keeping

profitable customers

Interesting numbers:

80 Cr. would be top 20 profitable customers

They may contribute to up 300 Cr

But the least 10 profitable customers causes up to

100 Cr loss.

The implication being company could profit “firing” least profitable customers.

Out of 100 customers.,If company makes a profit of 100 Cr

Profitable Customer

Customer lifetime revenue stream > Company lifetime cost stream

C1 C2 C3

P1 + + + High profitable product

P2 + Profitable product

P3 - -Unprofitable

product

P4 -Highly

unprofitable product

High profit customer

Mixed-bag Customer

Losing Customer

P – Product C-Customer

Customer Profit Analysis (CPA) is best conducted with activity-based costing (ABC) With ABC, the costs includes

not only the making and

delivering costs, but all the

company’s resources that go

into serving the customer

Both variable and overhead

costs are back

to the customer

Companies not measuring their profit

right are likely to misallocate resources

Long-term customer profitability is captured in

Customer Lifetime Value (CLV)CLV helps formulate framework

for planning investments and adopt long-term perspectives

Long-term customer profitability is captured in

Customer Lifetime Value (CLV)CLV helps formulate framework

for planning investments and adopt long-term perspectives

𝐶𝐿𝑉 =

𝑡=0

𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)

(1 + 𝑖)𝑡− AC

p (t) -- price paid at time t by customer

c (t) -- cost of servicing the customer

r ( t) -- probability that customer still buys the

product AC -- acquisition cost

T -- time horizon for the estimate

i -- discount rate

-

Long-term customer profitability is captured in

Customer Lifetime Value (CLV)CLV helps formulate framework

for planning investments and adopt long-term perspectives

𝐶𝐿𝑉 =

𝑡=0

𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)

(1 + 𝑖)𝑡− AC

p (t) -- price paid at time t by customer

c (t) -- cost of servicing the customer

r ( t) -- probability that customer still buys the

product AC -- acquisition cost

T -- time horizon for the estimate

i -- discount rate

-

Long-term customer profitability is captured in

Customer Lifetime Value (CLV)CLV helps formulate framework

for planning investments and adopt long-term perspectives

𝐶𝐿𝑉 =

𝑡=0

𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)

(1 + 𝑖)𝑡− AC

p (t) -- price paid at time t by customer

c (t) -- cost of servicing the customer

r ( t) -- probability that customer still buys the

product AC -- acquisition cost

T -- time horizon for the estimate

i -- discount rate

-

The key decision is the time frame for estimating CLV Typically, 3-5 years.

Special thanks

• https://www.flickr.com/photos/kimberlynmerrill/• https://www.flickr.com/photos/griddlecakes/

Thank you!

Created by :

Ashwin SasikumarGovt. Model Engineering College, Kochi

Prof. Sameer Mathur

IIM Lucknow

www.IIMinternship.com

During an internship under :