The Wheel of Loyalty Customer Lifetime Value(CLv) 3. Reduce 1. Build a CLV describes the net present value of the Churn drivers r Loyalty stream of future profits expected over the customer's lifetime purchases Implement complaint Use effective tiering covery Customer Loyalty / Deliver quality CLV calculations provide a formal quantitative framework for planning customer investment and helps marketers P Build higher level bond / Deepen the to adopt a long-term perspective Estimating lifetime value Measuring Customer Equity by CLV Annual customer revenue: $500 revenues(application fee initial purchase) Less costs(marketing +credit check account set up Average number of loyal years: 20 Annual value(project for each year of relationship) revenues(annual fee sales service fees value of referrals Company profit margin: 10% Less costs(account management cost of sales write-offs Customer lifetime value: $1000 Determine anticipated customer relationship lifetime Select appropriate discount figure Customer Equity is total sum of NPVs of all current customers25 The Wheel of Loyalty 1. Build a Foundation for Loyalty 2. Create Loyalty Bonds 3. Reduce Churn Drivers Customer Loyalty ¾Be selective in acquisition ¾Conduct churn diagnostic ¾Segment the market ¾Use effective tiering of service. ¾Deliver quality service. ¾Deepen the relationship ¾Give loyalty rewards ¾Build higher level bonds ¾Implement complaint handling & service recovery ¾Address key churn drivers ¾Increase switching costs Enabled through: ¾ Frontline staff ¾ Account managers ¾ Membership programs ¾ CRM Systems 26 Customer Lifetime Value (CLV) • CLV describes the net present value of the stream of future profits expected over the customer’s lifetime purchases. • CLV calculations provide a formal quantitative framework for planning customer investment and helps marketers to adopt a long-term perspective. 27 Estimating Lifetime Value • Annual customer revenue: $500 • Average number of loyal years: 20 • Company profit margin: 10% • Customer lifetime value: $1000 28 Measuring Customer Equity by CLV • Value at Acquisition – revenues (application fee + initial purchase) – Less costs (marketing +credit check + account set up) • Annual Value (project for each year of relationship) – revenues (annual fee + sales + service fees + value of referrals) – Less costs (account management + cost of sales + write-offs) • Net Present Value – Determine anticipated customer relationship lifetime – Select appropriate discount figure – Sum anticipated annual values (future profits) at chosen discount rate • Customer Equity is total sum of NPVs of all current customers