Customer Value Management Assignment Sample

Customer Value Management

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P 1 Various components of an organization to determine and calculate a customer's lifetime
value............................................................................................................................................1
P 2 Benefits of customer lifetime value to an organization........................................................2
P 3 Factors that influence the customer lifetime value...............................................................4
Task 2...............................................................................................................................................5
P 4 Types of market segmentation strategies that can be applied to a customer base................5
P 5 Evaluate B2C and B2B decision – making models and demonstrate it................................6
Task 3...............................................................................................................................................7
P 6 Different techniques and methods organization to encourage customer relationships and
customers loyalty........................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
Customer Value Management is a measurement of a company's customer's point of view
of the sensed value for money delivered relative to that of their rival's customer's, and it is also
called Customer Value Added (CVA). The developing marketing and management strategies is a
result of growing customer relationship management, large firms are investing to gather large
customer database to understand, monitor and influence customer behaviour (Blocker and et. al.,
2011). One critical factor of CRM is customer value, the economic value relationship which they
give to the firm, its major focus on the analysis of the individual data on potential customers, the
final information is used to acquire and retain customers and to drive customer behaviour
according to the marketing strategies, that optimize the current and future customer value. As
stated in case study, Homebase is a British retailer which offers home improvement accessories
and garden centre. It is founded by Sainsbury's in 1979. According to the given case study, it
adopted a SMS communication broadcasting campaign, that resulted in increasing sales with
20% AND 26.5% from both email and SMS both.
Task 1
P 1 Various components of an organization to determine and calculate a customer's lifetime
value
There are various components that every organization have, that are essential to run a
firm to get success, and every element is unique itself and plays an important role, Homebase
also has ultimate components, such as -
Sales force automation – Sales force automation is one of that factor that undertakes the
maximum business organizations and essential for customer relationship management. It
includes forecasting, recording sales processing and keeping a track of the potential interactions
as well (Doligalski, 2014). It aid to know the opportunities which can generate better revenues
that makes it very significant. There are some major elements are also considered within it, that
are known as Lead Management, Account Management, Opportunity Management, Forecasting,
Pipeline Analysis, Contact Management, Activity Management, Email Management and
Reporting
Lead management – As the name indicates, lead management refers to maintain track of
sales and distribution leads. The CRM is lead by the sales industries, marketing firms, and
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customer executive centres that benefited business. It involves the campaigns, designing
customized forms, finalizing mailing lists and several other elements.
Customer service – Customer service provides the data of customers that includes
purchasing information of customers, their patterns and potential departments from which they
buys the stuff.
Marketing – In Homebase marketing is one of the most significant components of
Customer Relationship Management, because it used to promote the goods and services in order
to increase the profit and influence customers, that aid to improve the strategies to used in
marketing and promotions (Flint and Woodruff, 2014).
There are some other components involved in CRM like workflow automation, business
reporting and analytics these all prudent to impact on CRM data, that drives the success of the
business.
Calculation of Customer Lifetime Value - There are several different ways to
calculate the CLV (Customer Lifetime Value), measuring CLV needs to looking at the length of
the customer's life span, retention rate, customer churn rate, and average profit margins per
customer (Flint, Blocker and Boutin Jr, 2011). There are two different formulas that calculates
the CLV according to the traditional and simple formulas. Here simple formula included in this,
that is as follows -
Simple CLV formula : The most basic way to determine CLV is to add up the revenue
earned for the customer (annual revenue multiplied by the average customer lifespan) minus
initial cost of acquiring them.
For example, Homebase generates $ 3000 each year per customer with an average
customer lifetime of 10 years and $5000 as customer acquiring cost, the the CLV will be
calculated as -
= (Annual revenue per customer * Customer relationship in years) – Customer
acquisition cost
hence, $3000 * 10 - $5000 = $25000
P 2 Benefits of customer lifetime value to an organization
Nowadays, many large companies adopting the Customer Value Management that
provides a exact calculations through Customer Lifetime Value, that refers to the profit amount
from that a firm earns from a consumer as they purchases the products and services from
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Homebase through lifetime. There are some benefits of customer lifetime value, that are describe
below -
Customer segmentation – CLV enables a business classify according to the distinct user
groups and diverse potential consumers groups through long term profitability, so a company can
decide a market strategy.
Early warning signs – Customer Lifetime Value can be use get early warning system to
detect desertion rates, it recognizes the problem section, so that correct actions can be applied to
the cause of event (Goetsch and Davis, 2014).
Complaint management – Complaint management is a front desk management in
Homebase that is established to know the customer's feedback whether they came across any
sudden problems then, the CLV used to solve their issues and tell them to take immediate actions
regarding a hurdle and how much time should be invest to give a solution.
Up sell and cross sell – There are two techniques that are used in marketing program to
up sell and cross sell, the CLV indicates which one should be used in focused area and when, and
in which segments (Keyte and Locher, 2016). Customer lifetime Value gives better idea, to gain
the expected returns by guiding to take correct decisions and investment to utilize up sell and
cross sell.
Brand Loyalty – Homebase is a company which has created customer loyalty and it is
still maintaining. Any company can be imitate products and services to gain the market value but
a firm which make a loyal brand that can't be copied by other companies, because loyalty is
difficult to copy, and so Homebase do.
Balance short term and long term goals – In Homebase CLV enables better decision
making when it have weigh to compete requirements to earn short and long term goals.
Quantify customer satisfaction – Most of the business rely on customer satisfaction
scores to direct interactions and explain the business results in terms of increase and decreased
amount of customer satisfaction (Kim, Gupta and Koh, 2011).
Lead generation – There are many CMO and CEO who don't realise the worth of lead,
when they observe to customer lifetime value, then only they understand that what is lead
conversion rate and how much a lead actually worth, and how much Homebase desires to spend
on new leads.
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Return on investment (ROI) – Every company has limited resources and it is same for
Homebase too, there are also some restricted resources but it is natural in the firms to brings to
maximum profit with existing sources (Linoff and Berry, 2011). It is necessary to know the
cumulative cash flow of of individual customer to retain a customer's maximum ROI.
P 3 Factors that influence the customer lifetime value
Constructing on existing customers lifetime value models, the first research stream of this
essay investigates about how individual characteristics and behaviour related to CLV and how
these factors relates to CLV predictions. When resources are short, then firms must increase
marketing efficiency and spend money on the right customers, so that they can attracts towards
the business (Manning, Reece and Ahearne, 2011). For this purpose, firms has different
possibilities to enhance the customer equity, and the sum of individual customer lifetime value.
Acquisition phase - In acquisition phase, the firms should attract high value and avoid
the low perspective customer so that those who have the potential can be raise the purchase and
that results to encourage sales of the Homebase.
Retention phase - In retention phase, Homebase should be concentrated on valuable
customers, can discourage low value clients to continue the relationship and incline revenue with
active customers.
To attain these objectives, the firm must identify prospects customer that have diverse
CLV to manage them accordingly and proactively, those who have high potential to increase the
buying power they will be put in active area and those who have low purchasing power, they will
put a step behind so that only the high rate focused area can be use to put effort in increasing
sales, that is beneficial for a business (McColl-Kennedy and et. al., 2012). For an instance, in
addition to identifying peculiars which are indicating high or low CLV, firms should recognize
aspects which have customer churning, therefore, that reflects to reducing CLV. After knowing
the facts, a Homebase will contact these vulnerable customers and to know the reason before
they quit the existing relationship. Furthermore, identifying customers with a potential to alter
revenue throgh cross selling or up selling, will assist to gain customer CLV. Thus, there will be
two questions driving from this research stream are -
a) What are the factors related to CLV?
b) What are the factors related to customer churn?
There are also some other factors which influence on CLV, that are as follows-
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Type of products a company sells – The products lifetime will be associated with some
products, for example, there are some products in the market, which are used according to the
size of family, otherwise they don't have any use or less used by a family or buyer. For instance a
car, which is purchased according to family as if family is having 4 members then they will buy
4 seater car which will be enough for them and if members are 8 then they need to buy an XUV
car.
Service and promise level – Every customer seeks for a better service as a company
promised to its customer's, they have to offer a service on the level which they have promised, or
they will loose the customers (Nasution and et. al., 2011). Hence, services should be provided
according to promised as this help to retain the customer for longer period and with this they can
earn good amount of profit, and will be able to satisfy customer in better way.
Market stability – Although, there is a rapid growth in the market, so customer are less
sustainable or it would be true to say that, lack of the unique or stable quality makes increasing
instability in the market. So market stability matters for a customer, if there is a stable in
product's quality, then customer will not churn. Basically, market stability is required for
companies as this help them to focus on innovation and creativity and with such a perfect
customer relation can be done and it has a great customer value and such thing will make them to
attain the profits in great way.
Company objectives – Financially strong, strategically oriented companies have the
confidence to establish long term view of customer lifetimes. Even though company has an
objective to bring an effective policy for innovation in there product which will make them to
attract customer and satisfy them to attain there goals and targets.
Task 2
P 4 Types of market segmentation strategies that can be applied to a customer base
Marketing segmentation has a prudent place in customer value management, because it
divides target market, it uses the database the promotes products and services. It make customer
segments that which are used to send messages to a target population in the market, as in case
study. There are three marketing strategies, namely demographic segmentation, geographic
segmentation, and psychographic segmentation.
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Demographic segmentation – Demographic segmentation is simply based on variables
such as age, gender, family, size, income, occupation, religion, race, and nationality. It
determines that what kind of population lives in a certain region, it emphasizes on majority
which stays in the area, only that products will go on rise (Nijssen and Frambach, 2013). For
example, if there is a more females in that region than the female products will go to rise in sales,
in Homebase, the feminine goods will be increase to sell.
Geographic segmentation – As the title indicates that the every geographic area has
different needs and that's why population which is located there also has distinct requirements.
For illustration, the people who stays in Atlantic region needs more heaters and woollens, so that
there will be more demand of these products.
Psycho-graphic segmentation – Psycho-graphic segmentation is based on lifestyle of
people, their activities and their interests. It considers the psychological aspects of consumer
buying behaviour, that can be consumers lifestyle and social standings, opinions and interests.
P 5 Evaluate B2C and B2B decision – making models and demonstrate it
Decision making is a core of every organization, as it is for Homebase also, there are
various ways that are used in decision making to manage trading from a business point of view.
So there are B2B and B2C are two major models that uses in decision making, below these two
are mentioned.
B2B business model – Business to business or B2B refers to transaction between
businesses, such as one is manufacturers, wholesalers, etc. There are separate entities that are
involved in same business but they have different things to perform, for an instance, Homebase
is retailer, which includes manufacturers, suppliers to sell the products in its stores, for that it
need to maintain relationships with other parties, these parties transaction known as business-to
business. In this model, business organizations becomes consumer to their associated firms,
because they exchanges a products and service to gain profit (Schmitt, Skiera and Van den Bulte,
2011). But there is no consumers are involved, this is only transaction between businesses. For
example, Homebase offers gardening products for that it needs to make a contract between
dealers who manufactures these kind of stuff, so it make a B2B relationship. Having an better
customer value management in B2B business the firm who is providing an proper resources to
company does help them to earn good amount as profit. Customer lifetime value it is such which
makes firm to have an proper relation with the customer and provide them appropriate services
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on timely basis so that they can be a existing customer for them. After that, it will make it pricing
strategies, like what amount it spend in purchasing goods from suppliers, analysing the
competition in market area because of price and quality. These both CLV and CVM is an
important one for the B2B as this help them to complete the work in effective way. Even it is
required to have an proper relation in between these which do help in enhancing the business in
great way. There are three kind of diversified model in it, like supplier centric model, buyer
centric model, intermediary model.
B2C business model – Business to consumer is a direct transaction between seller and
consumers, sellers are the retailer who sells the products directly to the end users who consumes
the goods, this quite different from B2B model, because there were the parties who earns profit
in terms of money, and here one is used to gain the profit in order to earn value of the items
which it sells and other one wants to get satisfaction through utilize the things (Siu and et. al.,
2013). Here retailer or wholesaler puts the final cost of the products which they spend to bring
the things towards the end users and the customer have to pay the price against the products.
Consumer can compare the prices of the products in different retailers who are offering the same
products. So it impacts the decision making power of consumer and business both. In this B2C
model the CVM and CLV is such which is mandatory for having an proper working in
organisation and thus it also leads to make it to earn higher profits in great way. Customer Value
management needs to be there as company has to understand the value of customer in great way
as thus could lead to earn a good amount for longer period too. Although, Customer lifetime
value is related with retaining a customer for longer period and to make them having an
enhancement of work and earning too.
Task 3
P6 Different techniques and methods organization to encourage customer relationships and
customers loyalty
Building customer relationship and customer loyalty is the main objectives for business
which gives a high return on the time, the endeavours that put in offering goods n and services,
raise customer loyalty and that aid to maintain good customer relationships, the investment, that
made to make an impression on customers will improve the sales. There are some techniques and
methods that includes in customer relationship and customer loyalty, these are described below -
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Take customer service as priority - Make a customer service as a key part of business
strategy will indulge both, customers and entrepreneur as well, because a customer always wish
to get the service as they got the promise. Effective customer relationship brings the user
demands in limelight, so that they can serve the best (Verhoef and Lemon, 2013). Differentiating
customers according to their level of so that they will get the assistance in time, as needed.
Generate the opportunities according to the customer feedback, and they can be sort out at time.
Main motive of organization is to earn profit and thus it is required that company should focus
on customer services and take it as priority in consideration. Moreover, providing an effective
service to customer can make them to earn higher profits too.
Essentials of customer care - According to this point, Homebase should find out the
ways to make customer's life easier, enhance the accessibility so that customers can simply pick
it for purchase, offers them a good quality products, remove the hassle which are inconvenient
for the buyers, try to reduce the fragility that can evokes the hurdles for Homebase such as,
choose reliable suppliers who can help in crisis, establish systems and cross – check every order
to ensure the integrity before execution. Homebase should intimate effectively, a communication
should be plan accordingly to inform the latent buyers, the contact should be easy and feedback
must be encouraged, so that customer have faith in brand for a lifetime (Schmitt, Skiera and Van
den Bulte, 2011). Basically, customer care are essential term in organization which do help to
solve many complaints and queries in better way. This is such which do help in bringing an
positive image of company, which relate to the earning of business in great way.
Yield top customers more – There are few people who shares large proportion in the
Homebase's profit, then it become essential to make them happy. Reserving a special level
service for the prime users, a business can offer some advantage to prior consumers, one should
promise with care, only make those promises which can be kept. Offer them new products to
make them first buyers of the goods. Entertaining these customer will be a good concept to hold
a relationship with them, occasionally give them a gift or some discount sales, or organize an
events for top customer. Those customers who are ready to spend more and more amount in
purchasing an product and services in great way. Although, customers are rationale in nature and
they need an those product which do satisfy there needs and wants in effective manner as well.
Encourage complaints – It happens most of the time, when a business entity avoids the
complains regarding their products, but Homebase is consider the complains and try to improve
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the weaknesses. Ask the customer that are they having any difficulty in product use? Or they
might facing any problem, try to encourage complains and fix the errors. Give a chance to face
the customer to the front line employees that can deal with them effectively, show some
affection, listen them cautiously what they are seeking for (Verhoef and Lemon, 2013). Even
though take Complaints as feedback and improve the working in better way, encouraging
complaints in company also help them to attain the goals and objectives in right format as well.
CONCLUSION
The above report is based on Customer Value management, and the main motive of
Customer Value Management is to adopting such techniques that can enhance the profitability of
business. A crystal clear concept of CRM is, to know the requirements of customer within the
targeted market, analysing the value of the product through customer' s perception that is also
provided by competitors, find out what kind of modifications can offer a positive effect to the
customer, and so on. As in given case study, Homebase is a retail in Britain which offers
extensive services to its clients, recently it adopted CVM that increases it sales and benefit. In
this report, calculated customer lifetime value that help determine the future sales of company
with simple formula and it also have several components, along with influencing factors,
marketing segmentation, B2B and B2C models that aid to decision making process.
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REFERENCES
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Siu, N.Y.M., and et. al., 2013. New service bonds and customer value in customer relationship
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