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Linking Investment in Branding to Customer Profitability6

A typical dilemma faced by any corporate board is whether to invest in building brands or to invest in building the customer base. Which of these routes will ensure maximum profitability? The answer is probably to invest in both. Also, it would be difficult to estimate how investing in brand building contributes toward attaining higher profitability .A key way to address these issues is to establish a link between brand value and CLV to manage individual customer brand value, This result in maximizing the CLV. This strategy explores the link between individual brand value (IBV) AND CLV, and it offers insights about bridging the gap between IBV and CLV. Brand equity and customer equity have traditionally been viewed as two separate marketing assets. However, building a brand through traditional approaches does not necessarily achieve growth in the CLV. Measurements on components of an individual‟s brand value are suggested so that a firm can identify how its customers value the brand. This framework enables a firm to optimizes a customer‟s lifetime value, thereby allowing simultaneous growth in brand equity and customer equity. Based on these results, the firm can redesign its communication strategies to cater to the needs of such customers. In one of the implementations, after the brand value was linked to CLV, the scores of the components of the brand value were improved to yield a higher CLV.

Acquiring Profitable Customers7
The strategies listed previously are aimed at selecting the right customers, managing them profitably, and retaining them through the optimal allocation of resources. Knowledge acquire in implementing these strategies could be used to acquire prospective customers with high profit potential. This approach to link acquisition and retention of customers to firm profitability is a key contribution of the CLV-based approach. While making direct marketing investment decisions, many marketers still overemphasize shortterm cost over long-term gain, leading to companies pursuing customers who are cheap to acquire and cheap to retain without essentially being profitable. Conventionally, most companies uses customers acquisition and retention rate to measure their marketing performance. This approach could diminish returns to the form because the might be spending more on acquiring and retaining a customers than on what the customers brings in as revenue. Further, different groups of customers require different level of acquisition/retention spending to maintain their relationship.

This can be achieved by identifying customers with similar characteristics as existing high-CLV customers and by adopting an appropriate marketing strategy. which is defined as the value of the referral behavior of a specific customer. But the accounted for only 20% of the total profit. There are two approaches for maximizing customer profitability: maximizing CLV and managing customer referral behavior. and both can increase the value of that customer to a firm. After the customer behavior of a catalog retailer was observed. customers where segmented based on their cost of acquisition and cost of retention. It is clear that not only can customers contribute to the firm through their own transactions (direct profit). 40% of the total profit came from the smallest group of customers(15%). While designing a marketing strategy to target our highest-value customers. And. It was found that the largest segment(32%) was made up of customers who where easy to acquire and retain. On the order hand. Firms should use customer profiles to identify the customers who are most likely to be profitable. Even though all customer relationship management (CRM) programs collect data on transactions and demographics. It was also shown that the referral process is not only able to bring in customers without excessive marketing expense. This demonstrates the importance of the efficient allocation of marketing budget across acquisition an retention initiatives to maximize profitability. it does have one main limitation as a complete measure of a customer‟s value. linking acquisition and retention to profitability helps the firm to target and retain profitable prospects and customers. who where expensive to acquire but cheap to retain. The concept of Customer Referral Value (CRV). is introduction in implementing this strategy. This metric enables managers to measure and manage customer referral behavior. A recent study showed that less behaviorally loyal customers. event if they do collect data on customer data attitudes. This dictates that customers be valued based on their indirect impact on the . it is also able to bring in customers who are not likely to join through traditional advertising and promotion by the company. this attitude measurements are often left out of the estimation of CLV. Therefore. their fail to measure data on customer attitudes. but they also have an impact on the transactions of other customers through wordof-mouth and referrals (indirect profit). Viral Marketing Strategies8 Although the CLV metric has been shown to outperform all other behavioral metrics such as RFM or SOW.The CLV approach recommended in this book suggests optimizing the acquisition/retention cost and directly links suck efforts to overall profitability. we need to consider the actual value that each customers can bring to the table in terms of both direct and indirect profit. such as in the form of surveys. This strategy helps form to decide which customers are worth chasing and which dormant customers should be pursued to come back to the firm.

collaborating and sharing information.   By adopting these measures. Traditionally.firm‟s profits. firms had a “product-centric” approach. Implementation/ Interaction Orientation9 When implementing these strategies. the timely interaction between the customers and the firm. Customer empowerment is the extent to which customers connect with the firm and other customers. and leads to acquiring and retaining profitable customers. is recognized as major source of competitive advantage. a „customer-centric‟ approach becomes imperative. firms need to fundamentally reorient their marketing approach. which helps in developing organizational resources for successful customer management strategies. The power of customer-to-customer linkages is recognized and nurtured as a customer empowerment component. For firms to maintain future profitability. as interaction orientation. marketing activities are conducted with the customer. Interaction response capacity is the degree to which a firm can provide successive products or services based on the previous feedback by a specific customer and all other customers. and criticism about the firm‟s products and services. In this process. In this approach. generates positive word-of-mouth. and effective management of this interaction. We define this interaction between the firm and the customer. praise. through savings in acquisition cost and the addition of new customers by way of customers referral. . firms can customize their products and services by better understanding the needs of their customers satisfaction. The customer is viewed both as a source of business and as resource for the firm. The various components of the interaction-oriented approach are as follows:   Customer capacity is the belief that the individual customer is the unit of every marketing action or reaction. the entire focus remained on the products. and managers were focused on making selling superior products. In the interaction-oriented approach. Customer value management is the extent of which a firm is able to quantify and calculate the individual customer value and reallocate its resources to higher-value customers based on this evaluation.