CUSTOMER CUSTOMER LIFETIMELIFETIME

VALUEVALUECONCEPTCONCEPT

CUSTOMER LIFETIME VALUECUSTOMER LIFETIME VALUE

WHAT IS IT?WHAT IS IT?

CUSTOMER LIFETIME VALUECUSTOMER LIFETIME VALUE

LIFETIME REVENUE OR PROFIT LIFETIME REVENUE OR PROFIT CONTRIBUTION TO THE FIRM.CONTRIBUTION TO THE FIRM.

BASED ON LONG-TERM BASED ON LONG-TERM RELATIONSHIP WITH CUSTOMERS.RELATIONSHIP WITH CUSTOMERS.

NOT TRANSACTION BUT NOT TRANSACTION BUT RELATIONSHIP MARKETING.RELATIONSHIP MARKETING.

FINANCIAL VALUE OF LONG-TERM FINANCIAL VALUE OF LONG-TERM RELATIONSHIPSRELATIONSHIPS

CUSTOMER LIFETIME VALUECUSTOMER LIFETIME VALUE

LIFETIME VALUE OF A CUSTOMER LIFETIME VALUE OF A CUSTOMER DEPENDS ON:DEPENDS ON:

LENGTH OF AVERAGE ‘LIFETIME’LENGTH OF AVERAGE ‘LIFETIME’ AVERAGE REVENUES GENERATED AVERAGE REVENUES GENERATED

PER RELEVANT TIME PERIOD (YEAR) PER RELEVANT TIME PERIOD (YEAR) OVER THE LIFETIMEOVER THE LIFETIME

SALES OF ADDITIONAL PRODUCTS SALES OF ADDITIONAL PRODUCTS AND SERVICES DURING THIS TIMEAND SERVICES DURING THIS TIME

REFERRALS GENERATED BY THE REFERRALS GENERATED BY THE CUSTOMER OVER THE LIFETIMECUSTOMER OVER THE LIFETIME

CUSTOMER LIFETIME VALUECUSTOMER LIFETIME VALUE

IT REFERS TO ‘LIFETIME IT REFERS TO ‘LIFETIME PROFITABILITY’ WHEN COST DATA IS PROFITABILITY’ WHEN COST DATA IS READILY AVAILABLE..OTHERWISE IT READILY AVAILABLE..OTHERWISE IT REFERS TO LIFETIME REVENUE REFERS TO LIFETIME REVENUE STREAMSTREAM

COMPONENTS ARE ACQUISITION COMPONENTS ARE ACQUISITION COST, BASE PROFIT, REVENUE COST, BASE PROFIT, REVENUE GROWTH, COST SAVINGS, GROWTH, COST SAVINGS, REFERRALS, AND PRICE PREMIUMREFERRALS, AND PRICE PREMIUM

COMPONENTS OF LIFETIME COMPONENTS OF LIFETIME VALUEVALUE

EXAMPLE.. EXAMPLE.. ACQUISITION COST..COMMISSION, ACQUISITION COST..COMMISSION,

CREDIT VERIFICATION, PROCESSING, CREDIT VERIFICATION, PROCESSING, SALES AND ADMIN OVERHEADS. SALES AND ADMIN OVERHEADS. HIGH..COMPANY MAY LOSE MONEYHIGH..COMPANY MAY LOSE MONEY

BASE PROFIT..CUSTOMER PROFIT BASE PROFIT..CUSTOMER PROFIT CALCULATED BY SUBTRACTING COST CALCULATED BY SUBTRACTING COST OF SERVICING CUSTOMER OF SERVICING CUSTOMER

COMPONENTS OF LIFETIME COMPONENTS OF LIFETIME VALUEVALUE

PROFITS FROM REVENUE PROFITS FROM REVENUE GROWTH..ADDITIONAL REVENUE GROWTH..ADDITIONAL REVENUE STRAM FROM CONTINUED USAGE, STRAM FROM CONTINUED USAGE, CROSS SELLING, UPSELLING, ..CROSS SELLING, UPSELLING, ..

COST SAVINGS..LESS REQUIREMENT COST SAVINGS..LESS REQUIREMENT OF CUSOMER SUPPORT OVER TIME, OF CUSOMER SUPPORT OVER TIME, FAMILIAR..FAMILIAR..

COMPONENTS OF LIFETIME COMPONENTS OF LIFETIME VALUEVALUE

REFERRALS..SATISFIED, OVER A REFERRALS..SATISFIED, OVER A PERIOD OF TIME..RECOMMEND, PERIOD OF TIME..RECOMMEND, WORD OF MOUTH, BEST ADVTGWORD OF MOUTH, BEST ADVTG

PRICE PREMIUM..LOYAL CUSTOMERS PRICE PREMIUM..LOYAL CUSTOMERS CONTINUE EVEN WHEN CONTINUE EVEN WHEN COMPETITORS ENTER MARKET WITH COMPETITORS ENTER MARKET WITH LOWER-PRICED OFFERINGS..BETTER LOWER-PRICED OFFERINGS..BETTER SERVICE AND VALUE..SERVICE AND VALUE..

ADVANTAGES OF USING ADVANTAGES OF USING LIFETIME VALUELIFETIME VALUE

IDENTIFYING THE POTENTIAL OF IDENTIFYING THE POTENTIAL OF PROSPECTSPROSPECTS

MORE FOCUS ON RETAINING THE MORE FOCUS ON RETAINING THE HIGHER LIFETIME VALUE CUSTOMERSHIGHER LIFETIME VALUE CUSTOMERS

IDENTIFYING AND MANAGING IDENTIFYING AND MANAGING PROFITABLE CUSTOMERSPROFITABLE CUSTOMERS

ACTIVITY BASED COSTING ACTIVITY BASED COSTING FOR CRMFOR CRM

ABC IS A BUDGETING AND ANALYSIS ABC IS A BUDGETING AND ANALYSIS PROCESS THAT EVALUATES OVERHEAD PROCESS THAT EVALUATES OVERHEAD AND OPERATING EXPENSES BY LINKING AND OPERATING EXPENSES BY LINKING COSTS TO CUSTOMERS, SERVICES COSTS TO CUSTOMERS, SERVICES PRODUCTS AND ORDERS.PRODUCTS AND ORDERS.

FIRST, IT TAKES FUNCTIONAL COSTS AND FIRST, IT TAKES FUNCTIONAL COSTS AND ALLOCATES THEM TO ALL ACTIVITIES ON ALLOCATES THEM TO ALL ACTIVITIES ON THE BASIS OF USAGE..i.e. VOLUME AND THE BASIS OF USAGE..i.e. VOLUME AND TIME REQUIREDTIME REQUIRED

SECONDLY, COST OF EACH ACTIVITY IS SECONDLY, COST OF EACH ACTIVITY IS ALLOCATED TO A NUMBER OF COST ALLOCATED TO A NUMBER OF COST OBJECTS..PRODUCT OR SERVICE OBJECTS..PRODUCT OR SERVICE

HIGH AND LOW COST-TO-HIGH AND LOW COST-TO-SERVE CUSTOMERSSERVE CUSTOMERS

HIGH COST-TO-SERVE CUSTOMERSHIGH COST-TO-SERVE CUSTOMERS ORDER CUSTOM PRODUCTSORDER CUSTOM PRODUCTS

SMALL ORDER QUANTITIESSMALL ORDER QUANTITIES

UNPREDICATBLE ORDER INTERVALSUNPREDICATBLE ORDER INTERVALS

CUSTOMISED DELIVERYCUSTOMISED DELIVERY

HIGH AND LOW COST-TO-HIGH AND LOW COST-TO-SERVE CUSTOMERSSERVE CUSTOMERS

HIGH COST-TO-SERVE CUSTOMERSHIGH COST-TO-SERVE CUSTOMERS MANUAL PROCESSINGMANUAL PROCESSING LARGE PRE-SALE AND POST-SALE LARGE PRE-SALE AND POST-SALE

SUPPORTSUPPORT REQUIRE COMPANY TO HOLD REQUIRE COMPANY TO HOLD

INVENTORYINVENTORY CHANGE DELIVERY REQUIREMENTSCHANGE DELIVERY REQUIREMENTS PAY SLOWLYPAY SLOWLY VICE-VERSA FOR LOW COST-TO-VICE-VERSA FOR LOW COST-TO-

SERVE CUSTOMERSSERVE CUSTOMERS