Customer lifetime value
Discuss about the Economics And The Vertical Market Restrictions.
The definition of customer lifetime value (CLV) is the current worth of all succeeding profits obtained from a customer for the period of their relationship with the company. CLV is defined and estimated at the customer or department level. According to Kumar & Reinartz (2016, p.36), the benefits of a high CLV is easily quantifiable, for example, an increase in customer retention by a mere 5% will increase profitability by more than 25%. In addition, the cost of retaining a customer is $7 while the cost per new customer averages at $34. Clearly, it is essential to increase the customer lifetime value of any type of firm (Sunder, Kumar & Zhao 2016, p. 901).
Different firms use different means to increase their customer lifetime value. However, the following are the most cost-effective means to boost those numbers.
- Personalized campaigns
Personalized campaigns targeted at new and existing loyal customers, through email, has proven to expand repeat buys. The CLV of customers obtained from email data is 12% above average. It is key to organise your purchasers for an email campain strategy (Kumar & Pansari 2016, p. 1). A business may offer an incentive to new purchases or your customer’s preferences, for example, a coupon, gift certificate or in the case of new customers- a welcome or a thank you message.
- Customer service
According to customer feedback data, more than 70% of customers list good customer service as their reason to repeat buying ( Kumar 2018, p.1). Businesses ought to create a multichannel view to customer service which involves emails, phone calls and live communication via social sites which has become a progressively favoured customer service channel ( Kumar 2018, p.1). By communicating with customers, whether it is by sharing their pictures and reviews or by immediately responding to their complaints, you can show that your business values and appreciates them. Appreciating your customers will give them a feeling of belonging, as though they are a part of the business.
- Loyalty Program
Loyalty programs provide the benefit of joining a business toward the most profitable seection of your customer foundation and repeat customers.. Loyalty programmes are divided into thee types; prize for the amount purchased, a reward for total spending and paid upfront rewards. A rewards system can incentivize further spending while building brand loyalty. It is advisable for businesses to delay starting up a reward system until they have a way to measure the success, that is, by seeing an increase in repeat and new customers. Although during the measure, the factor to keep most eyes on is the number of repeat customers. If the number rises then the incentive program is working.
- Upsell and Cross-sell
Effective means to increase CLV
Any business needs a good client data to reveal ideal cross-sell and upsell options. From previous data, you can derive accurate and selected advice which stimulates purchasers to add on or upgrade. Upsell is the ability to encourage a customer to buy more products or expensive products and cross-sell is selling a different god or service to an existing customer. Targeted product recommendations secrete repeated clients who relate with companies that offer a distinctive shopping experience. For example, Amazon is the leading retailer in this field with its recommendations founded upon browsing behavior and purchases.
Partner with a company that compliments your products or services.
Building a new customer base needs trust. People need to trust you enough to get into business with you. Now, you can build this trust or you can borrow it. You can collaborate with a company that offers a similar but not competitive product, sometimes you can collaborate with a company that doesn’t sell the same products or services but has a market similar to yours (Lee, Lanting & Rojdamrongratana 2017, p . 1559).
- Offer freebies
Freebies are always a good way to get people’s attention. The trick is to find the correct one. For example, a dog business can offer people gifts and put in a condition that everyone has to go to the store to pick their gifts (Stone& Woodcock 2013, p. 394). Just this, the act of finding and visiting your store, can be worth the cost of the freebie an if offering gifts is too expensive then the business can pick a date to offer relaxed prices or gifts.
- Do in-person events
This is one of the best ways to counterbalance “show rooming,” where prospective customers visit your store to check out a product, then they go home and buy it online for less. Events can also be a great way to ally with another company, a cause, or even a local author. For example, a garden supply store can host weekly talks about gardening topics every Sunday afternoon during the winter months. Now, given that these talks are a series, the advertising for each one supports all the other talks. And the store makes sure they’re stocked with any products mentioned in the presentation. The result is a considerable advance in customer loyalty, the ability to stay open through the winter, and a dramatic spike in sales every Sunday.
- Be distinctive
Competition is stiff, especially for small business and startups. Also competing on prices is a dead-end, which leaves competing on customer experience or how the business brands and markets itself. But many business owners feel that branding takes too much time and expensive but being distinctive does not require money or a business degree. For example, color. Picking a different color for your business can make you distinctive and have a big effect and is cost-effective (Lucas 2015, p. 13).
- Maximize word of mouth marketing
Personalized campaigns
Word of mouth is still the greatest means to market. It is also the most affordable (it’s free). It goes like this, send a coupon or a free service to existing customers, two of them- one for the customer and one for a friend. Then you let your customers pick which one of their friends could use your products (Woodcock, Green, & Starkey 2011, p. 50). All of these means are interconnected, each one of them works best with the other, but the ordering is done this way because those are the easiest most promising ways to find and nurture a new customer base.
The incentives offered by airlines are similar. All of them propose to strengthen their relationship with their customers, in the same way, for example, almost all British airlines offer in-flight smoking chances where customers who smoke tobacco (YILDIZ 2017, p. 81). But in my view not any of these raise the market cost for the airline. First, most airlines are in partnership with one another, which as previously mentioned, is a great way to make new customers. Therefore, a market created by one airline is shared with the other airlines that are in a partnership with it. Second, the airline offers loyalty cards to their most frequent members. These loyalty cards are applicable, in some cases, in more than one airline. This means that both airlines have a chance to benefit from a customer’s frequent use of a loyalty card. And lastly, a customer loyal to an airline can use his ‘loyalty status’ on another airline in case his favorite airline does not fly a certain route (Tripathi 2014, p. 123).
For these reasons, the loyalty of a single customer does not benefit only one airline. The market for airlines is unique and they all share it among themselves. Therefore, loyalty programs offered by airlines do not increase the marketing value of the airlines because airlines do not act as a single entity but as a whole group where, one airline’s actions benefit all management .
Activity-based costing (ABC) is an accounting technique that identifies the activities a firm performs and then assigns indirect costs to products (Tarasi, Bolton, Gustafsson & Walker 2013, p. 121). An ABC system recognizes the relationship between costs, activities and products, and through this relationship, it assigns indirect costs to products less arbitrarily than traditional methods.
When a firm installs an ABC system, the profitability of the firm drastically improves. This improvement requires a accounting and marketing to work closely together. Keeping key customers and identifying accurate costs are two most important issues to the company.( Thakur & Workman 2016, p. 4095) A lot of studies suggest that customer profitability drives a company’s customer portfolio management, but crucial to the issue of success is the accurate calculation and allocation of important costs to the individual customers. An ABC system can calculate the accurate cost for the individual customer making it a critical part of any company that wishes to be involved in customer portfolio management. In this market, cost allocation and customer portfolio management are inseparable (Tarasi, Bolton, Gustafsson & Walker 2013, p. 121).
Good customer service
Transaction Cost Economics is a major theory in the field of Strategy. It tackles question of why firms exist in the first place, how these firms determine their boundaries, and a recommendation of how to manage operations (Lafontaine & Slade 2010, p. 587). It attempts to answer the question of why some dealing occurs from within the firms rather than in the market. Answer? Not surprisingly, is because markets break down (Ragen 2013, p. 111). Because of human emotional limitation, the basic assumptions of a perfect market (for example, anonymous actors, atomistic actors, rational actors, perfect information, homogeneous goods, the absence of liquidity constraints) does not persist (Bylund 2015, p. 158). Therefore, it is usually a good reason transact within the firm.
Firstly, Williamson argued with an explicitly behavioral assumption of human behavior (bounded rationality). The feeling of most humans to want the best of all the transactions they undertake. Therefore, for a manufacturer or a supplier, they will demand the best business deal and because they are afraid to do business outside the firm, they require a privileged relationship.
Secondly, he noted that the dealing sides sometimes act opportunistically and take advantage of their counterparts. This in addition to characteristics of the dealings, for example, specificity, uncertainty or frequency that result in markets to fail; and hence, are likely to cause some dealings to be arranged within the firms rather than markets (Bylund 2015, p. 158).
List of References
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Yildiz, E 2017, ‘Effects Of Service Quality On Customer Satisfaction, Trust, Customer Loyalty And Word Of Mouth: An Application On Cargo Companies In Gümü?hane’, Global Journal Of Economics & Business, 6, 12, pp. 81-88, Business Source Premier, EBSCOhost, viewed 9 May 2Thakur, R, & Workman, L 2016, ‘Customer portfolio management (CPM) for improved customer relationship management (CRM): Are your customers platinum, gold, silver, or bronze?’, Journal Of Business Research, 69, 10, pp. 4095-4102, Business Source Premier, EBSCOhost, viewed 9 May 2018.018.
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