Customer value management is taken as a tool that creates a link between consumer and KPI. This concept shows that superiors of a company has to manufacture products or services as per trends of market (Hammer, 2015). In order to increase the performance of sale and improve brand image, an association needs to measure the drivers of purchasing behaviour. This report shows the impact of customer's behaviour on business of a company of UK named by Homebase. It is a home improvement retailer firm which has founded by Sainsbury. Currently this association needs to improve its sales by 20%. Therefore, this assignment discuss the different factors which affect customer base and profitability of company if managers get success in retaining them for longer period of time. For this assistance, employers need to take proper decisions in understanding the value of customers through which they can provide high satisfaction to them as well as gain their loyalty for long terms.
P1 Components that enable an corporation to determine & calculate customer's lifetime value
Managers of Homebase Company use customer lifetime value as a tool which forecast the value through which they can generate high revenues. It is considered as an important part in business environment because when people used to purchase goods and services in bulk then such companies can gain a higher return on investment. Along with this, for enhancing performance of business, associations requires to gain attention of loyal customers also. For this process, management should make effective strategies and contribute more efforts in increasing consumer value through which they can achieve business objectives in a proper manner. In addition to this, CLV can be defined as a periodic value which shows the estimated value of 12 months relationship that is near about £x. Some major components used by managers of a company for calculating Customer Lifetime Value are described as follows:
Present Value: This factor shows the perception of customers after acquiring services of a company or footfall of them at outlets (Hollensen, S., 2015). It is like a discounted value which depicts cash flow generated by customers. Along with this, it indicates value of money in terms of time i.e. how long a customer will be retain with products.
Customer Loyalty: A CLV is totally depends on how long customers will retain with firm's services and commodities. Therefore, associations always seek to get loyal customer which will help in generating high return on investment. While if people are not not loyal then they will not connect with company's products for long time.
Mathematical Formula: CLV can be taken as monetary price also which can be calculated by using mathematical formulae. Through mathematical operators, managers can evaluate accurate value. For doing such type of calculation, they need to consider some important factors like perception of customers, durability of time in which they retain with products or services and total revenue gained by firm. In mathematical terminology it can be shown as (Total revenue/Number of months customer taken the services). This formula derives the more accurate result of average revenue generated by a customers at individual basis (Kerzner and Kerzner, 2017).
Cohort Analysis: This type of analysis classifies the customers into some group or community having similar characteristics like taste, lifestyles, purchasing power and more. Through this process, managers can understand the demand and needs of people in large way as well as completed the same within a short period of time. In addition to this, such analysis saves time of completing the demand also.
Individualized CLV: In this step, people associated with firm used to measure the demand and value of customers on individual basis. Since, measuring value of consumers individually doesn't affect much on profitability but it represents a clear presentation of lifetime value of particular person in a company.
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P2. Benefits of customer lifetime value to an enterprise
By measuring the Customer Lifetime Value, managers can evaluate performance and image of an organisation at marketplace. Along with this, they can derive in which position actually their company is. Through this process, employers can make modifications in organisational activities and make creative and innovative products in order to get attention of consumers towards its services. Furthermore, this type of concept also aid the firm in enhancing the positive image at marketplace which increase helps in attracting more people. In context with Homebase, this company used to make connection with customers through SMS and e-mail services (Kim and et. al., 2015). Through this communication process, they provide information to large number of people about its discounts and various offers. Effectiveness of such strategies could be reflect by measuring footfall of customers in its outlets. Some more benefits of CLV for any business organisation are:
- Enhance goodwill of firm in market: Through effective customer relationship with company, managers can gain success in organising and maintaining the image of products at marketplace in positive way. It increases the goodwill of company as well as keep the interest of consumers for long period of time also. These processes aid firm in gaining the sustainability in market area and achieving the business objectives in a high manner.
- Increase profit and ensure growth of company: Rapid change in technology aid organisations in making good connection with customers. New techniques also help in manufacturing products or services in high qualitative way (Kotler, 2015). Therefore, for understanding demands of consumers as well as completing on time, an association needs to adopt latest technology in organisational system. As discussed Homebase used to offer its products on various attractive discounts and make aware to customers by mailing and SMS services. Therefore, it helps in enhancing marketing by online services.
- Financial growth: This is the main benefit of CLV which helps in enhancing financial growth of company at large manner. For this process, a company needs to acquire loyalty of customers to retain them with product or services for long time.
- Price Setting: CLV depicts the purchasing power of particular group of customers through which managers can formulate price strategies as per need of them. By providing goods on affordable rates as per status of people helps in generating more and more revenues as well as keeping their interest for long period of time also.
P3. Factors influencing the customer lifetime value
Since procedure of CLV is long and consumes much time, therefore, it is affected by various factors which further impact on sales performance and profitability of company also. Mainly this concept helps in determining retention of customers with products or services of a company (Kotler, 2017). Through this managers can evaluate the perceptions of people also by which they can identify purchasing power of buyers as well as what they actually need. In same context, Homebase Company of UK use effective techniques for customer value management in order to enhance the growth of business and profitability. By analysing factors present at internal and external environment which could create an impact on CLV, assist employers to use effective measures for minimising it on time. Some factors influencing the customer's lifetime value are:-
- Lack of professionals: This factor depicts the lack of persons in a company who are expert in measuring the value of customers by carrying out various techniques like mathematical formulae, loyalty, retention and more. Therefore, a firm needs to recruit professional persons in customer relationship management.
- Difficult to calculate: For evaluating the value of customers through calculations, managers need to gain knowledge of some mathematical terminology (Kumar and Reinartz, 2016). Since, without a correct formula, they cannot calculate the value of customer value management. In addition to this, measuring accurate value of CLV is sometimes very difficult for expert persons also due to insufficient information.
- Online and offline channels: In order to make effective connection with customers, management of an association needs to latest techniques. They need to consider the usage of online and offline channels along with their benefits and drawbacks. Through evaluating the use of both procedures, managers are required to provide information about products, offers and other services to customers on regular basis. It helps in making connection with customers with long purpose.
- Size of organisation: size of a company also matters a lot as customers generally like to purchase commodities of those firms which has large business organisation as well as effective image at marketplace. But having large number of customers create a complex procedure for managers to calculate CLV in an accurate manner.