This unit reflects that marketing manager wants to increase profits by introducing customer lifetime value matrix for understanding contribution of customers.
- Determine concept of customer lifetime value and analyze various factors that impact it.
- Evaluate different customer segments and identify scope for customer value creation at Homebase.
- Demonstrate techniques and methods used for increasing customer lifetime value at Homebase.
Customer value management is a measure that helps in determining company's customer view point of the perceived value for money delivered relative to that of their competitors' customers. It is measuring drives value of customers, measuring perform in relation to competition, focus on scarce resources and creating sustainable competitive advantage. The concept of customer value management is very simple, it include questioning with customers in target market about what they are looking for when they do business with vendors, it also determines how customers in target market rate they value provide by company and compare it with the value provided by competitors (Kotler, 2015). Companies are becoming customer oriented and are focusing on fulfilling their needs and wants. This assignment is based on Homebase organisation which analyse various components for calculating customer's lifetime value. Evaluation of factor which influences customer lifetime value and explanation of market segmentation with B2C and B2B models are mentioned in this report.
P1 Different components to determine customers lifetime value.
Homebase is the broadcasting company which offers SMS service and facilities to customers. Company focuses mainly on providing benefits to their customers and try to satisfy their needs and wants and on the other hand increase tier profitability and market share. Homebase uses the concept of customer lifetime value in order to estimate value and focuses on maintaining better relations with their customers. Customer lifetime value helps company to calculate monetary benefits of a customer relationships (Kumar and Reinartz, 2016). This helps Homebase to take important decision related to sales, marketing, product development and customer support. There are various elements which is used by Homebase for calculating and measuring the customer lifetime value management.
Mathematical formula- in this, company measure customer lifetime value in terms of monetary price that can be calculated by applying suitable mathematical formula. This formula mainly indicates total revenues of a company which are separated by specific number of months while customer join with the firm. This mathematical tool help company in determining the price and also enable them in retaining customers for a longer period of time. Following is traditional formula for calculating CLV:
CLV = (Average order value x Regulatory of Purchases) x (Average Retention Time).
Following variable are required to calculate CLV:
- Average Retention Time: This value determines average lifespan of an individual consumer.
- Average Order Value: In this constant time variable is used as the period of a year. It requires division of total revenue during year by the number of order purchases in a particular year.
- Regularity of Purchase: Determining this value is more feasible as compared to calculating weekly purchases as many companies do not repeat customers every weak. In order to calculate this, divide total order during the year by annual unique customers.
- Individual Value of Customers: In this, average order value is multiplied by the customer's regulatory of purchases.
Customer's loyalty- Customer lifetime value mainly depend upon loyalty of customers or buyers. If the company provide better service to their target consumers then in return of their services they are increasing their loyal customers (Kotler, 2017). This is crucial for company to increase this number in order to increase their sales and make maximum profits. Company should ensure that their customers retain for a longer duration with them and always prefer them over others. This will provide competitive advantage to the firm and increase their profitability.
Cohort analysis- It is a subset of behavioural analytics that collect data form a given e- commerce platform which include web applications, online game and rather than looking at all users at one. Cohort analysis breaks them in into different groups for analysis purpose. This analysis is a great tool to measure user engagement over time. It helps in determining whether user engagement is getting better with time or is not. It also helps in separating growth metrics form engagement matrix as growth can easily mask engagement problem.
There are various elements which assist company in making and developing large customer base. Along with this, it will increase firm's profitability that will ensure retention for longer period of time by company in the market.
P2 Benefits of customer lifetime value to an organisation
Customer lifetime value offers various benefit and advantages to company. This ensures company to make strong relations with their customers and increase their income level. Therefore, the concept of CLV help enterprise in building an optimistic image in large market place also attract large number of customers towards their services and facilities (Weinstein and Pohlman, 2015). Following are some benefits of customers lifetime value that are described as follows:
Saving money: It sometime become cost effective while retaining old customers as compared to finding new ones. It become easier for company as they already know about needs and requirements of customers and provide them services according to that. Finding and attracting new customers become expensive and time consuming for company as it involves expenses of newspaper, T.V., Google and social media, etc.
Better marketing: Customer Lifetime Value helps company to improve their marketing strategy and focus on customer requirements and needs. The main aim of every company is to attract large number of customers and provide services and facilities in order to satisfy them. This tools determines satisfied customers and help company to retain customers for longer duration of time.
Save time: This tools enable company to focus only on their loyal customers and target market and doest not thinks about those who are not worth the headache.
Increase in sales: CLV helps company with increased sales and profits if they achieve success in building large number of loyal customers (Xu, Peak and Prybutok, 2015). Tendency of loyal customers are that, they prefer respective company over and over again and this enhances buying of products or services and thus leading to increase in sales.
Engaged customers provide valuable feedback: Feedback is crucial for the success of any business. Loyal customers tend to give valuable feedback to the company, it may be both positive and negative. Customers which provide feedback are often willing to give brands the benefit of doubt. They give directions to company, how they can earn their business repeatedly.
Better forecasting: CLV provide a better way to determine future needs and demands of their target and loyal customers. It helps company to manage their investments in assets, workforce and inventory based on future demands. CLV also helps in cutting down productivity loss by guiding better resource allocation strategies. If there are multiple product lines, in that case, it predicts purchase probabilities and give idea about efficient allocation of resources which results into higher profits.
Re- invent loyalty management: Customer lifetime value is a great tool for improving operational efficiency as well as it reduces customer dissatisfaction. It helps company to understand about the needs and demands of customers which e
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