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Post Graduate Program in Business Analytics

M&CRM: Value & CLTV

Prof. Jones Mathew, PhD

Great Lakes Institute of Management, Gurgaon
jones.m@greatlakes.edu.in
2018
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Agenda
• What are customer value, satisfaction, and loyalty, and
how can companies deliver them
• What is the lifetime value of customers and how can
marketers maximize it
• How can companies attract and retain customers and
cultivate strong customer relationships
• Database marketing
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Customer perceived value (CPV),

Satisfaction & Delight
• Customer perceived value
• The customer’s evaluation of the difference
between all the benefits and all the costs of a
marketing offer relative to those of competing offers
• Customer satisfaction
• The extent to which a product’s perceived
performance matches a buyer’s expectations
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Determinants of customer perceived value

Total customer Total customer

benefit cost

Product benefit Monetary cost

Services benefit MINUS Time cost

Personal benefit Energy cost

Image benefit Psychological cost

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Applying value concepts

• A firm can improve its offering in three ways:

• By improving the economic, functional, and psychological

benefits of its product, services, people, and/or image.

• By reducing the buyer’s nonmonetary costs by lesser time,

energy, and psychological investment.

• By reducing the product’s monetary cost to the buyer.

• e.g. visit - http://www.mahindra-customisation.com/

or http://www.nike.com/in/en_gb/c/nikeid
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Steps in customer value analysis

1. Identify major attributes and benefits that customers
value
2. Assess the quantitative importance of different
attributes and benefits
3. Assess the company’s and competitor’s performances
on the different customer values against rated
importance
4. Examine ratings of specific segments
5. Monitor customer values over time
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Customer loyalty

• Loyalty is a deeply held commitment to re-buy or re-

patronize a preferred product or service in the future
despite situational influences and marketing efforts
having the potential to cause switching behavior.
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Establishing value
• Value proposition => whole cluster of benefits the co. promises to
deliver; it is > the core positioning of the offer
• e.g. Volvo’s core positioning has been “safety,” but the buyer is promised
more than just a safe car; other benefits include good performance, design,
and safety for the environment
• It’s a promise about the experience one can expect from the co.’s
offering
• Keeping the promise depends on the co.’s ability to manage its
value delivery system (VDS)
• The VDS includes all the experiences the customer has on the way
to obtaining & using the offering
• At the heart of a good VDS is a set of core business processes that
help deliver distinctive consumer value
• What does Domino’s sell??
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Satisfaction = fn(Quality)
• Quality is the totality of features and characteristics of
a product or service that determines its ability to
satisfy stated or implied needs

• e.g. Domino’s did deliver within 30 minutes as promised, but

the Pizza was soggy and cold…
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Measuring satisfaction
• Conducting periodic surveys

• Determining customer loss (attrition / turnover /

defection) rate

• Commissioning mystery shoppers

• Monitoring competitive performance

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Managing customer dissatisfaction

• The potential downside of having an unhappy customer is
very critical & marketers must deal with negative
experiences properly. Some of the measures are –
• 24 X 7 toll-free hotline (phone/fax/e-mail/social media) to
receive & act on customer complaints
• Contact the complainant ASAP. Slower the response more the
dissatisfaction & negative w-o-m
• Accept responsibility for the customer’s disappointment; don’t
blame the customer
• Use customer service people who are empathetic
• Resolve swiftly & to the customer’s satisfaction. Some
complainants are not looking for compensation as much as a
sign that the company cares
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Managing CLTV

Customer Lifetime Value

Customer Equity
The total combined future customer lifetime
values of all of the company’s customers

Customer Profitability
More loyal customers will generate more
customer equity
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Customer - product profitability analysis

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Estimating CLTV
• e.g. Newspaper subscription
•• Annual
e.g. Newspaper
customersubscription
revenue: Rs. 250* 12 mths = Rs. 3000/-
•• Average
Monthlynumber
billing: Rs. 250 years: 10
of loyal
•• Company
Average number of loyal12%
profit margin: years: 10
•• Customer
Company lifetime
profit margin:
value: 12%
Rev: Rs. 30,000
•• Profit:
Customer lifetime value: ??
Rs. 3600/-
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CRM?

CRM is the process of carefully managing detailed

information about individual customers and all
customer touch points to maximize customer loyalty
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CRM framework

• Identify prospects and customers

• Differentiate customers by needs and value to company
(Silver/Gold/Platinum card members)
• Interact to improve knowledge (engage with customer)
• Customize for each customer/customer segment
(different offerings for different customer segments)
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Attracting/Retaining customers

• Reduce the rate of defection

• Increase longevity
• Enhance share of wallet
• Terminate low-profit
customers
• Focus more effort on high
profit customers
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Customer retention programs

(Winer, 2001)
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Marketing Funnel

• It is a widely used marketing tool that tracks various stages of

consumers as they purchase a product/service – from prospect
to loyal customer.

• It helps a company in making better decisions related to

its marketing strategies.

• It leads the traffic right from lead generation to end-purchasing

through a funnel.
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The marketing funnel

• The funnel identifies the % of the potential target mkt. at each

stage in the decision process, from merely aware to highly loyal
• Consumers must move through each stage before becoming loyal
customers

BUTTERFLIES
PROFITABILITY PROFITABILITY
High profit potential
Actions: Aim for transactional
HIGH
satisfaction, not attitudinal loyalty;
PROJECTED PROFITABILITY
Milk the account only as long as
they are active; Key challenge is to
cease investing soon enough.
STRANGERS
Lowest profit potential
Actions: Make no investment in
these relationships; Make profit on
LOW
every transaction
Short-term customers
PROJECTED LOYALTY
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TRUE FRIENDS
Highest profit potential
Actions: Communicate consistently but
not too often; Build both attitudinal &
behavioral loyalty; Delight these
customers to nurture, defend & retain.
BARNACLES
Low profit potential
Actions: Measure both the size & share
of wallet; If share of wallet is low, focus
on up- & cross-selling; If size of wallet is
small, impose strict cost controls
Long-term customers
(Reinartz & Kumar, 2002)
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Retaining customers

• Frequency or Loyalty programs

• Designed to reward customers who buy frequently
and in substantial amounts
• They can help build L/T loyalty with high CLV
customers, creating cross-selling opportunities in the
process
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Database
• A customer database is an organized collection of
comprehensive information about –
• individual customers or prospects that is current, accessible, and
actionable for lead generation, sale of a product or service, or
maintenance of customer relationships
• Database marketing is the process of building,
maintaining, and using customer databases and other
databases (products, suppliers, resellers) to contact,
transact, and build customer relationships.
• Customer database -> Database marketing; Mailing list
• Business database -> Data warehouse; data mining
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Using the database

• To identify prospects
• To target offers
• To deepen loyalty
• To reactivate customers
• To avoid mistakes

Common latest CRM tools used in Marketing:

1. Salesforce.com
2. ZohoCRM.com
3. Microsoft Dynamics 365 Online
4. InStream
5. Hubspot.com
6. Oracle Netsuite
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References
• Almquist, E., Senior, J. & Bloch, N. (2016) The elements of value. Harvard
Business Review, 94(9), p. 46-53.
• Hawkins, D.I, Best, R.J. and Coney, K.A. (2001) Consumer Behavior: Building
Marketing Strategy. 8/e. Boston: Irwin McGraw-Hill.
• Kotler, P., Keller, K.L., Koshy, A. and Jha, M. (2013) Marketing Management:
A South Asian Perspective. 14th ed. Delhi: Pearson
• Reichheld, F.F. (1996) The Loyalty Effect. Boston: HBS Press. p. 39.
• Reinartz W. and Kumar V. (2002) The mismanagement of customer loyalty -
Not all customers are created equal. Harvard Business Review. Available at:
http://hbswk.hbs.edu/archive/3028.html. Accessed 20 Jul 2018.
• Winer, R.S. (2001) A framework for customer relationship management.
California Management Review, 43(4), p. 89-105.