Customer Lifetime Value (CLV) Analysis and B2B Decision Making Process

The provided text is an academic-style writing that discusses the concept of customer lifetime value (CLV) and its relevance to business-to-business (B2B) decision making process. It presents various references from books, journals, and online sources that provide insights into CLV analysis and its applications in B2B industries such as banking, insurance, and automobile. The text also provides a framework for understanding the B2B decision-making process, highlighting the importance of considering customer value and lifetime in business decisions.

Customer Value
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
P1:Calculation of customer's lifetime value ...............................................................................1
P2:The benefits of customer lifetime value to an organization .................................................3
P3: The factors that influence the customer-lifetime value........................................................3
P4: Type of market segmentation ..............................................................................................4
P5: The B2B and B2C decision-making ....................................................................................6
P6: The different techniques and methods that can be applied to increase loyalty of customers
.....................................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................10

INTRODUCTION
Customer value management (CVM) is a measurement of organization view of customers
of the perceived value for money delivered relative to that of their competitor customers (Casas-
Arce, Martínez-Jerez and Narayanan, 2016).. It is also known ass customer value added
approach. In terms of their overall profitability now and in the future the CVM can give
company's way to evaluate individual subscribers. The tailored products and services to the
customers are been given by CVM .This is been done in order to increase profits on an
individual customer level. In the face of rapidly decreasing process and potentially slower
acquisition growth CVM enables companies to mange their firm.
Home base is a home improvement retailer and garden center with stores in the UK. The
products such as DIY tools paint and decor outdoor living kitchen etc. are been offered by this
company. In this report the advantages of customer-lifetime value to an organization will be
presented. Further more this report will present the different techniques and methods that can be
sued in order to increase the customer loyalty in the company.
P1:Calculation of customer's lifetime value
The companies with total focus on the customers will be the winner in this world of
extreme competition. The importance of customer satisfaction must be understood by the
companies and the process need to be build around it. The loyalty of customer will be more if the
customer is satisfied. In the market there are large offerings of products and services
available .Only that product will be purchased by the customer that will give them maximum
perceived value. From the calculation of the cost associate with emotional level of decision this
value comes from. After considering the total cost of associated with purchase, perceived and
other use the consumer will take decision. If the performance of the product is as per the
expectation of the customer then it is considered as customer-satisfaction. The product will be
purchased by the completely satisfied customers (Özyörük and Kavak, 2017.)..
The prediction is been made in the market through the customer lifetime value (CLV).To
the entire future terms with customer the net profit is attributed. In order to understand the
customer lifetime value is the single most important metric that is used. About
sales, ,marketing , product development and customer support the important decisions will be
made by the company Home page. For an instance the amount of money that will be invested by
the company in order to do marketing of its products. In order to retain the customer and support
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the services the money that is to be spend will discuss by the company through CLV. The
advantageous of using CLV are as follows-:
On multiple marketing approaches it forces the business to depend on instead of relying on just
one- In order to draw in the most valuable customer the customer lifetime value forces a business
to consider social ,viral and conventional marketing practices.
For scalability it provides a chance to plan – On a daily basis if a business is aware their the best
customer are going to spend money on the product then there is a chance to plan for scalability.
In the meaningful segment it naturally divides a targeted demographic – When applying
customer lifetime value the customer segmentation naturally occurs. Every segment this actually
benefits as it allows a business to recognize what are the needs of each segment requires.
The emphasis of success squarely on the customer is placed – By forcing the business to analyze
the accomplishment of their customer instead the customer lifetime value switches the dynamic .
In order to calculate the customer lifetime value the various variables are need. They are as
follows-:
Average order value – With this the average is been given which is spent on each site with each
new order that is made. It is very essential as it helps to decide whether one should increase the
frequency or to increase the average order value .
Average order value = Total revenue/ number of days
Purchase frequency – In a given time period the purchase frequency will let the company know
about the number of time a customer will purchase product from their store. It is also essential as
it let the company whether the customers are buying product from their store or not.
Purchase frequency – Number of order/ unique customers
Customer value – There is a customer value before there is customer lifetime value. The value of
customer average ordered is multiplied by their purchase frequency in this. During the time
frame this will give the value of a customer that can be used to calculate average order value and
purchase frequency (Zhang, Liang and Wang, 2016.).
Customer average lifespan – Before the customers drop off and go dormant a customer average
lifespan is the average time of a customer remains active.
CLV= Customer value * Storage average lifespan
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Customer satisfaction- The customers will be satisfied when all the products and services will be
given to them as per their requirements and also the high-quality services will be give to generate
more satisfaction among them.
Retention of customers- This means repetition of the customers that have visited to the
organization once. The customers will be repeated if all things in the organization will be done
keeping them in mind. For any organization in order to generate profit it is important to repeat
the customers.
Loyalty of the customers-The customers will stay loyal to the company if the value to their needs
will be given by the organization. Customer loyalty is the outcome of consistently positive
emotional experience, physical attribute-based satisfaction and perceived value of an experience,
which includes the product or services.
Segmentation model-Most of the organization make use of STP model that is
segmentation, targeting and position in order to conduct marketing. The essential characteristics
of each market is being recognized in the segmentation and the in the targeting one or more
markets is selected and for the selected segments the detailed product positions is developed in
product positioning.
P2:The benefits of customer lifetime value to an organization
There can be various actions that can be taken by the organization based on the
calculation of lifetime value that can increase the revenue of the company home base.
Effective customer segmentation – In better profiling of customer and segmentation the customer
lifetime value can help. It will provide customized services .In order to gain the maximum
possible revenues per customers it will lead to profile based dynamic pricing. Through
segmentation it will increase forecasting accuracy and lead conversation ratios.
Better foresting – For the availability of services or product the companies such as home base on
the basis of customer per lifetime value can plan better by predicting future demand by
customers. In assets, work force and inventory based on future demands it will help to manage
optimum investment. By guiding better allocation of resource strategies it also helps in cutting
down productivity loss.
Retention of customers – In order to win back customers the companies can prioritize on .For an
instance as per the case study the home base company in UK is sending e-mails and sms to the
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customer about the special offers. This step is been taken in order to increase the loyalty of
customer towards the company (Shahin and Mohammadi Shahiverdi, 2015).
Saving money – In comparison with the new ones the customer lifetime value is cheaper in order
to retain customers. The channels such as radio adds, TV , google and social media all the cost
money and are costly so the customer lifetime value can be used.
Creating brand loyalty – For enhancing operational efficiency and reduce customer
dissatisfaction the customer lifetime value can be good indicator. In order to improve the loyalty
of customer for a long period a better understanding of needs of customer and behaviour will
help. Based on this home page can redesign its loyalty plan to make it more effective.
P3: The factors that influence the customer-lifetime value
On the right customer the firms must increase marketing efficiency and spend more
money as resource are scarce. In order to increase customer equity the firms have different
possibilities. The firms should attract high value in the acquisition phase and neglect the low
value of prospective customers. The valuable customer should be kept by the form in the
retention phase and the low value customer need to be discouraged by the firm to continue the
relationship and with existing customer increase the revenue. With a different CLV's the firms
must recognize prospects and customer in order to achieve these objectives. For an instance in
order to recognize characteristics that indicate a low or high CLV, the factors need to be
identified by the firms. Before they quit the relationship the firms can then conduct with the
vulnerable customers. The firms will also increase the customer CLV by identifying the
customers with potential to increase revenue by cross-selling (Özyörük and Kavak, 2017.).
The factors such as quality of product, time taken to solve the queries of customers, CRM etc are
the some of the factors that influences CLV.
Quality of product – If the product is of good quality then there are chances that customer
retention will be more as in comparison with low quality product the high -quality product are
more liked and preferred by the customers.
Queries of customer-If any query related to the producer or services taking long time to solve by
the company then in this case the customer repetition or retention will be less and that customer
will not be satisfied with the company. If the queries of customers are solved in less time then
the customer-satisfactions will be more.
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Customer relation management – If the product and services are been developed keeping in mind
the expectation of customer then in this case the customer-satisfaction will be more and there are
chances that the store will be visited by the customer again. So, companies need to develop
product and services keeping in mind the likes and dislikes of customer to increase they number
of customer and also this will increase their sales.
P4: Type of market segmentation
Based on some types of shared characteristics the broad consumer or business market is
divide into subgroup by using the concept of market segmentation. For the common
characteristics such as shared needs, common interests , similar lifestyle the market is
segmented and divided. The objective of the market segmentation is to recognize the high yield
segments that is profitable for the company. In the books the one of the oldest marketing trick is
market segmentation (Nenonen and Storbacka, 2016.). As the population of customers and
preferences of customers have become more wider so in any business or marketing plan the
market segmentation has become critical. By keeping in mind the market segmentation
companies will launch products. In order to classify the customer wants there are three ways.
They are known as needs, wants and demands. The segmentation need to be carried in order to
decide the needs, wants and demands. The first step in the segmentation is to determine the
customer type for the products. The four different types of market segmentation strategies are as
follows-:
Demographic segmentation -The one of the most simple and widely used market segmentation is
demographic segmentation. This can be used by the company home base in order to get the
correct population in using their products. Based on variable segmentation basically divides a
segmentation .The age, income, occupation,gender, family size etc are some of the variables in
demographic segmentation. For an instance in this company some brand are target only women
while some other targets men. In the segmentation strategy an essential role is been played by
demographic segmentation (McCarthy,Fader and Hardie, 2016).
Behavioural segmentation – On the basis of behaviour, usage and decision-making pattern this
type of market segmentation divides the population. For an instance the colourful lights will be
preferred by the young people while the older generation will prefer light colour in the lights.
The product will be marketed by the company based on the behavioural of an individual.
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Psycho-graphic segmentation – In order to define a market segment psycho-graphic
segmentation is one which make use of lifestyle of people, their activities , interest and also their
opinions. To the behavioural segmentation the psycho-graphic segmentation is quite similar.
The psychological aspect of customer purchasing behaviour is also been considered by the
psycho-graphic segmentation. All across where the application of this segmentation is seen. The
latest and differential product are being preferred by the customer today .In retail industry there
are various segments which have become popular. The one such segment is the lifestyle segment.
Based on their lifestyle everyone has different habits of clothing. As the customer that is
purchasing products can be school going, college going. The customer buying behaviours is also
affected by activities, interests and opinions. The different interest and opinion can be there of
different customer (Lewis, 2015).
Geographic segmentation – On the basis of geography this type of market segmentation divides
people. Based on the geography in which they resides the potential customer will have different
requirements . By attacking the restricted area the companies segment the market. For an
instance the company Home base can select to market their brand in certain countries but not in
other. In one market, one state or one region of they UK a brand can be sold. In order to achieve
the concentration of force on a limited geographic area the company will focus. In consumer
prefers the regional differences exist and for geographic specification it may often provide a
basis. Many forms such as urban versus rural, warm area versus cold areas etc can be taken by
geographic segmentation.
Media segmentation
To reach out different audiences the different media can be used by the companies. The
companies that have some control over the media that companies prefer this type of
segmentation. From using that particular media they discourage rival companies (Kahreh and
Hesan, 2014).
B2B Segmentation- This can be done on the basis of firmographics. Based on the shared
qualities of the customers the segmentation can be done. On the factors such as size of business ,
company location etc the segmentation can be done. Also, on the basis of the tiring the
segmentation of the customers can be done,In this segment can be done on how much revenue
one expect the customers to bring to the business during the duration of the relationship.
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P5: The B2B and B2C decision-making
B2B decision-making models- In two ways the business to business markets are different
in comparison with consumer markets. The decision-making process and units in B2B are not
easy. By one or two individuals the consumer purchase decisions are made .While in B2B
decision are been made by the employees who are specialized in a different area. For their
judgments the B2B decision-makers are accountable(B2B Decision Making Process, 2017) .So,
in a comparison with consumer buyers they have more complex needs. At a personal level the
consumer save emotional and rational requirements .However, in B2B buyers have these both
kinds of requirements at both personnel and at company level need to be met. In two ways the
product offering is essential to the customer .The first is represented by the budget that is
invested in the product and the second is the strategic importance that is place on it (Delafrooz
and Farzanfar, 2016.).
Spend- The classification is low if less than 5% of the annual budget is been spent on the offer.
The classification is high if the spent is more than 5%.
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Illustration 1: decision-making process in B2B
(Source:2 Frameworks to Help You Understand Every B2B Decision
Making Unit, 2017)

Strategic importance- The product is classified as the offering as high strategic importance if
the product is essential to the customers and is not replaced immediately by another. The
product is classifies as low strategic importance id it does not fulfill the above conditions.
Low-spend ,low strategic importance – This means that consumer do not want to think about this
offer. They will get irritated if this product is not there when they need it. At the pi rec that is
being offer by this offer the customer will spend no effort .The high-margin proprieties will be
provided. The product can be bundled with other product and services that come under the same
category. This might be an opportunity for the product such as stationary(Kahreh and Hesan,
2014.).
Low spend and high strategic importance- The offer is not so costly but it is essential for
business operations for customer. Some of this will make the customers extra loyal and ultra-
cautious. The several employees will be included in the customer's decision-making team .With
them the partnership need to be develop in order to discusses the details of the product. By
offering the superior partnership, productivity , reliability one can differentiate the product from
rivals (Clempner and Poznyak, 2014).
Low strategic importance and high speed – To the operations of the client the offerings are not
critical. But with its cost they are concerned. The bargaining will be done by the customer in
order to reduce the expenses that are there. The several employees will be included in the
decision-making process .More on the cost the attention will be there of the customer rather than
the offering value. By simplifying the procedure of purchase the differentiation can be made by
the company in comparison with rivals.
High strategic importance , high spend – The product that is offered is both of high value and is
essential for client's operation. The customized requirements are needed by the client .The five
employees are involved in the decision-making team.
Business to consumer (B2C)- In order to decision in B2C the 5 steps are being follows in it. Thye
are as follows-:
Recognition of problem – With some sort of problem most of the decision-making starts. A need
or want is being developed by the consumer that they want to satisfy it. For an example suppose
the customer want to purchase the toot paste so they will go the store in order to buy it (Casas-
Arce, Martínez-Jerez and Narayanan, 2016).
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Search process – In this the searching will be done by the customer regarding that particular
product on the search engine such as google.
Evaluation of alternatives -The comparison will be done by the customers based on the quality,
price and other facts that are essential for them. They may also read review and compare
prices.
Selection stage – The decision will be made in this stage .
Evaluation of decision – The goals of very company is retain its customers so they don't want
that any sort of bad experience is being given to the buyer.
Gate keeper theory: This process define about to the information management method by
utilisation of media for selected information by broadcasting in media by several essential
information in several business event. It is the process of mass communication in which broad
information can be provided to their customers in effective manner.
Financial decision-making model: The corporate top leader can formulate financial decision
towards the maximisation in the profitability and also accomplishment of strategies in order to
make proper scope of customer values by providing effective retail product and services in the
company at the lower rate so that customer feel more satisfaction about their values towards the
organisational product and services. The business manager need to evaluate company
performance and make appropriate decision towards the customer values satisfaction within the
corporation and according to the effective pricing policies of the firm, their customer feel more
valuable and importance given them in order to increase their brad loyalty towards the company
in effective manner. The manager of the retailer store should make their decision in order to
reduce the costing of each product and services in effective rate.
Business decision-making model: In this the best model for the business will be selected form
the other options that is available. In this the business decision-maker need to optimize the
solution or select the best alternative.
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P6: The different techniques and methods that can be applied to increase loyalty of customers
1.With each individual customer the personal relationship can be developed-The
company home page can send the SMS or e-mails about the special offers of the company. So,
that the customer will feel important and they will also think that importance is been given to
them.
2.Focus on the customer preference -The likes and dislikes of the customer need to be evaluated
by the company .As per the expectation of the customer the company's need to develop its
product and services.
3.Discount need to be given -The company home page need to give special discounts to the
customer so hat they will be targeted towards the company and will visit it often.
4.The high-quality goods need to be provided – The quality of product need to be of high-quality
as this will generate more satisfactions among customers (Abe, 2015).
The five ways that can be used to increase the customer loyalty are as follows-:
 The excellent services need to be given to the customers
 The priority to the customers need to be given
 The rewards to the customers also need to be given
 At regular intervals the discounts also need to be given to them
 The feedback forms the customers need to be taken and changes should be made in the
organization based on it.
CONCLUSION
Thus summing up the above report it can be concluded that customer lifetime value will
beneficial for the company as it will be not so costly and also it will also increase the loyalty of
customers. The demographic, geographic, media etc are some of the market segmentation
strategies that can be used in the business. The discounts can be given to the customer in order to
repeat the customer in this company.
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REFERENCES
Books and journals
Abe, M., 2015. 5 Deriving Customer Lifetime Value from RFM Measures: Insights into
Customer Retention and Acquisition.
Casas-Arce, P., Martínez-Jerez, F.A. and Narayanan, V.G., 2016. The impact of forward-looking
metrics on employee decision-making: the case of customer lifetime value. The
Accounting Review, 92(3), pp.31-56.
Clempner, J.B. and Poznyak, A.S., 2014. Simple computing of the customer lifetime value: A
fixed local-optimal policy approach. Journal of Systems Science and Systems
Engineering, 23(4), pp.439-459.
Delafrooz, N. and Farzanfar, E., 2016. Determining the customer lifetime value based on the
benefit clustering in the insurance industry. Indian Journal of science and Technology,
9(1).
Kahreh, M.S. and Hesan, M., 2014. Analyzing the applications of customer lifetime value (CLV)
based on benefit segmentation for the banking sector. Procedia-Social and Behavioral
Sciences, 109, pp.590-594.
Lewis, M., 2015. Incorporating dynamics in customer lifetime value models. Handbook of
research on customer equity in marketing, pp.101-117.
McCarthy, D., Fader, P. and Hardie, B., 2016. V (CLV): Examining variance in models of
customer lifetime value.
Nenonen, S. and Storbacka, K., 2016. Driving shareholder value with customer asset
management: Moving beyond customer lifetime value. Industrial Marketing
Management, 52, pp.140-150.
Özyörük, H.E. and Kavak, B., 2017. An Approach to Customer Lifetime Value Modeling for
Service Firms 1. Tüketici ve Tüketim Araştırmaları Dergisi= Journal of Consumer and
Consumption Research, 9(2), pp.221-255.
Shahin, A. and Mohammadi Shahiverdi, S., 2015. Estimating customer lifetime value for new
product development based on the Kano model with a case study in automobile industry.
Benchmarking: An International Journal, 22(5), pp.857-873.
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Zhang, H., Liang, X. and Wang, S., 2016. Customer value anticipation, product innovativeness,
and customer lifetime value: The moderating role of advertising strategy. Journal of
Business Research, 69(9), pp.3725-3730.
Online
B2B Decision Making Process, 2017. [Online]. Available through
<https://financesonline.com/tips-to-help-marketers-understand-b2b-decision-making-process/>
2 Frameworks to Help You Understand Every B2B Decision Making Unit. 2017. [Online].
Available through <https://www.b2binternational.com/publications/2-frameworks-to-understand-
b2b-decision-making-unit/>
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