Homebase has adopted SMS mode for enhancing their sales. Working as marketing manager there is responsibility to enhance the profitability ratio at workplace. CLV matrix is a tool that can be adopted to get more information related to customer relationship by taking into consideration following factors:
- What is the basic meaning of CLV and ways to calculate customer lifetime element & value that is affecting a workplace?
- Examine different components of creating customer base & opportunities for creation of high customer value
- Discuss some techniques and methods for increasing customer lifetime value.
Customer value management is a measurement of perceived economic value of money provide to their clients as compare to their competitors consumers, it also called customers worth added conceptualization. It help management to know accurate determine what is the main driving factor of buyers in order to measure organisation performance in long period of time. Through this activities firm are able to reach large number of individuals toward product and services by offering high quality goods (Ascarza and et. al., 2016). Thus help to achieve goals and objectives in limited period of time effectively.
In this report select Homebase to the impact of CVM on company performance. It is a British home transformation retail organisation with almost 214 store across United Kingdom. Homebase sold to Wesfarmers in the year of 2016 and they start rebranding of existing brand. In this assignment covers components and determination of buyers lifetime value and its benefits as well as element that effect it. Report also includes model of B2B and B2C etc.
P1 Components that enable calculation and determination of buyer's lifetime value
In order to run whole business activities effectively, management of the company has develop strategies to forecasting value of customers in long period of time which help to gain higher clients satisfaction. No one has aware about how long their relationship with buyers should be work. So that, organisation want to calculate consumers life time value (CLV) that explain periodical worth in order to make strong relationship between enterprises and customers. For example, company has established relation with their clients for month with the value of £ XYZ. Some important element of CLV has detail below:
- Present Value: It mean amount that clients has ready to pay in current market environment for purchase some product and services. It also shows frequency of repetition buying by potential buyers at market place (Chacour and Ulaga, 2015). Present worth of goods has been calculated by time value of money that has consumers life time value which depend of customer's retention of long period of time.
- Customer Loyalty: It help management to forecasting commodities and services sales. CLV has depend on consumer's loyalty because it shows retention time period of individual. For example, if person can not satisfy organisation goods then they have not loyal toward firm resulted repurchase of existing commodities by that clients should be stop, so that firm want to offer higher quality product to person in order to retain them and enhance loyalty factors. Through this, institute gain higher profitability and if there are no loyalty then it create negative impact on their performance.
- Mathematical Formula: To analyse customer's life time value, manager of the company has used numerical formula that is mathematical expression of worth of product in individual eye. Through this, firm take right decision related feature, quality etc. of goods as well as services (Di Benedetto and Kim, 2016). In this instruction includes number of individuals, total revenue etc. for example, if organisation have 100 consumers and receive 10000 US dollar as revenue then CLV is total number of buyers / total revenue = 100 / 10000 = 0.001. Thus shows person satisfaction as well as profitability of the company. By CLV, management has able to take right decision in order to run whole business activities in an effective manner. Mathematical formula of CLV detail below:
- CLV = ((T x AOV)AGM)ALT
- Here; AOV = Average Order Value
T = Average Every month transactions
ALT = Average clients Life duration
- In Detail:
Here; R = Monthly Retention Rate
D = monthly Discount Rate
- Cohort Analysis: Study of group of individuals that have same perception, thinking, personality traits, motivation factors, attitude etc. Management has find out this cluster on that time when they have get life time value of consumers. Cohort has consumer time as more then one customers has examine but variations arise negative effect on method which may affect discovery of person life time worth.
- Individualized CLV: Most of organisation has used individualized CLV method in order to gain higher accuracy in outcome. Through this, firm has focus on each and every individual purchaser behaviour toward firm goods and services along with potential rival at market place. Marketing manager of Homebase has used individualized CLV technique to calculated past as well as present information which help to make action of plan for long period of time (Schwepker and Ingram, 2016).
P2 Benefits of Consumer Lifetime Value
In business environment is very dynamic in nature there are very high competition so that various company has start attention on clients loyalty as well as CLV. By implementing this method, management has able to know individual thinking about their goods and find out gap between actual as well as desire outcome. In order to full fill this gap they are develop strategies to produce high quality commodities and services to achieve goals, thus build positive goodwill by offering differentiate product at market place. By executing CLV method enterprise has enhance operational task that improve productivity as well as profitability of the company. Some crucial profit has CLV has detail below:
Re-invent Royalty of Management – Wesfarmers is a now owner of Homebase firm and they are rebrand all goods as well as services in order to build new positive image of the company in clients mind. Through this, they are reinvent loyalty among individual that help to gain higher person satisfaction as well as market position. Wesfarmers has used CLV in order to get information related to improvement area to offer better commodities, services. By this, they are redesigning their all plan to produce product with high quality.
Price Setting – For this, management has get information related to individual needs, wants, preferences, perception, competitors strategies etc. to fix goods price. Company has implementing market research to know person disposable income as well as their purchasing capacities (Rihova and et. al., 2015). That data help organisation to take right decision of modification in existing commodities accordingly choose prices, it provide higher customer's satisfaction.
Better Forecasting – By using CLV methodologies firm are able to know future needs and wants of market as well as focus consumers that help to take right decision in order to enhance operational work effectively. Homebase has execute forecasting strategies by using CLV plan thus increase overall sales by 20% in year. Through this, enterprises has capable to rise sales volume in future period and attract many consumers toward organisation commodities, services. Referred firm has gain growth by offer SMS services to their target buyers. With the help to CLV, marketing manager of enterprise has find out opportunities of future clients requirement thus help to run whole business activities in long period of time ef