Understanding customers

for Supply Chain

Management
By: NHK Cooray
Department of Business Management
Rajarata University of Sri Lanka
Introduction

• Firms are looking at sustainable growth while

increasing revenue and reducing cost
• Customer Focus is essential
• Knowledge of Customer Life Cycle & Lifetime
Value enables organization to develop strategies
• CLC is the journey of the customer from getting
attention to becoming a customer and finally
being retained and associated for a long time with
an organization
Customer Lifecycle

Loyalty Programs
Retention
Maintaining &
Sustaining
Conversion
Segment Based
Selling & Value Strategies
Acquisition Creation

Mass
Reach Attention Marketing
Capturing Strategies
Reach

• Process of getting attention of prospective customers

• Innovative means are required to reach customers

• Measurements

• Number of Readers

• Visitors

• Subscribers

• Footfalls

• Viewers
• Reach is getting attention and Acquisition is how effectively
an organization has got the attention

• It s getting any response from the Prospect but not

necessarily purchase

• Conversion is converting acquired prospect into a Customer

• Resulting the process of exchange of a product or service

resulting in value addition to both
• Is the difficult because….

• Psychographic profile

• Personality factors

• Pre-purchase behavior of customers

• Quality of touch points

• Conversion Rate can increase by effective Sales

Management Techniques ,….

• Additional value addition can be practiced through Up

Selling, Cross Selling
• Retention keeping existing customers with your organization

• After Sales Service and understanding and fulfillment of new

expectations and requirements

• Defections is a continuous and inevitable process of losing the

customers which happens during all stages of CLC

• Competitors, Marketing initiatives of existing players, brand-

swinging behavior of the customers, dissatisfaction with the
company’s products/services, impulse buying and Novelty seeking
buying behavior
Example

• Calculate average purchase value

• Calculate average purchase frequency rate
• Calculate customer value
• Calculate average customer lifespan
• Calculate CLTV
ABC Company observed the followings within the organization,
• Average purchase value: Rs. 1000 (per annum)
• Average purchase frequency rate: 5 times per annum
• Retention based on reach : 25%
• Average customer lifespan : 50 years

Calculate customer value and the customer life time value

Please assume that the WACC for the organization is 10%
 Customer Lifetime Value
• Relationship Marketing
• Relationship Benefits
• Accounting Profit from the customers
• CLV or LTV is present value of all net payments during the complete life of the
customers with the organization.
• CLV=Rs M (r/(1+d-r))
• CLV has tremendous value
• Allocation of Resources
• Customer Selection
• Segmentation
• Merger & Acquisition
• Customer Equity
• Marketing Campaigns
• CLV based Loyalty Programs
 Calculating Customer Lifetime Value
• Concerned about
• The cost of acquiring the customers
• Periodic cost of providing the service/product
• Churn Rate/Retention Rate of the Customer
• Rate of Discounting
• There are two categories
• Contractual Situation/Customer Retention Situation
• Customer Migration Situation
Prospects Lifetime Value

• Prospect if someone the firm will spend money on in an

attempt to acquire him as a customer.
• PLV is the value expected from each prospect minus the
cost of prospecting
• PLV=a (Rs M0+CLV)-Rs. A
• A=expected fraction of prospects who will make a
purchase and become customers
How to Improve CLV

• Based on current and potential value customers can be

divided into four segments

Low Potential Value High Potential Value

High Current Value High Current Value
Nurture this customer Sustain this customer
Current Value

Segment Segment
Low Potential Value High Potential Value
Low Current Value Low Current Value
Think before investing Nurture this customer
resources here Segment

Potential Value
Critical Issue: Value Proposition – Customer Fit

Key Key Customer

Partners Activities Relationships

Value Customer
Key Proposition Channels Segments
Resources

Dynamically Interdependent

Cost Structure Revenue Stream