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Wednesday, August 19, 2009

Maximizing CLV (Customer Lifetime Value)

Strategic Marketers point out that any CLV calculation will differ greatly by three important factors: 1) the industry Sector; 2) the product; and 3) the period of analysis. Even if your calculation of the Customer Lifetime Value isn’t 100% accurate, it does give you a way to compare various customers in your customer base. If you are in an industry that can provide differentiated service, this allows you to guide your front-line employees to provide better service to customers who have higher CLV’s.

The weakness, of course, is that CLV relies upon a lot of assumptions about tenure, future product purchasing and future costs. A 20 year old male with a low financial services wallet might have higher costs and lower revenues for you today, but over his lifetime, IF you keep him engaged, and IF you get your fair share of his disposable income over time and IF he is reasonable to service, he should be a good investment. But those are some pretty big ifs. And, once you’ve decided that your high CLV customer is worth your time, what aspects of that relationship do you need to actively manage in order to keep that customer? The key of a Core Customer Metric is that it is one that isn’t just predictive of the financial outcomes, it inherently includes some relative measure of loyalty.

The best Core Customer Metric not only points to which customers are loyal, but which aspects of the Customer Experience are critical for increasing or decreasing the metric over time.

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