The Importance of Customer Lifetime Value

This assignment discusses the importance of customer lifetime value in business, highlighting how satisfied customers spend more money and create value for the organization. It concludes that developing a healthy relationship with consumers is crucial to enhancing CLV and increasing profitability.

CUSTOMER VALUE
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(A) (P1) Various components that enable organization to determine customer lifetime value. .1
(b) (P2) Benefits of customer lifetime value..........................................................................2
(c) (P3) Factors that influence CLV.......................................................................................3
(d) (M1) Practical application of concept of CLV.................................................................3
TASK 2............................................................................................................................................4
1) (P4) Types of market segmentation strategies...................................................................4
2) (P5) B2B and B2C decision making models......................................................................5
3) (M2) Various segmentation models in B2B and B2C.......................................................5
TASK 3............................................................................................................................................6
1) (P6) Models to increase customer relationship and loyalty...............................................6
2) (M3) Methods apply at different stages of consumer decision making process................7
3) (D1) Key concept of CLV..................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Customers are the key stakeholders of business unit. They highly contribute in the
success of organization. If entity is able to satisfy consumers then it can sustain in t he market for
longer duration (Leroi-Werelds and et.al, 2014). Companies have to concentrate on needs of
consumers and ways through which they can create value to the firm. For the present study,
Homebase Company is being taken into consideration. It operates business in SMS based
broadcasting. Furthermore, report will describe the segmentation models that can be applied in
organizations. In addition, it will critically analyse the concept of customer lifetime value.
TASK 1
(A) (P1) Various components that enable organization to determine customer lifetime value
Customers are the lifeblood of firm that are valuable to business unit and contribute in
enhancing its value in the market. Each firm aims to satisfy its consumers and make them loyal
towards the brand (Martinsuo and Killen, 2014). For that, they offer these consumers high
quality products and services so that they will be loyal towards the brand and experience its
services for longer duration. In the competitive environment, companies have to face high issues
in retaining consumers in the firm for longer duration. Customer lifetime value is considered as
tool that is used by most of the organizations to measure their net profit through specific group of
people. It helps in analysing the importance of customers to business. By calculating CLV, entity
makes strategies and arrange their monitory resources so that it can generate profit and become
able to meet with the needs of these valuable consumers.
In order to calculate CLV, companies have to deduct cost of services from profit gained
by entity (Nagaoka and et.al., 2016). This cost includes expenditure made by the business unit
for providing services to buyers and meeting with their needs. By calculating these expenditure,
entity can examine its overall cost.
In order to calculate CLV for Homebase Company, various things are taken into
consideration. These are explained as below:
 Cohort analysis: It takes into consideration the necessary changes that have been
implemented in business unit over a period of time (Stark, 2015). By this way, Homebase
company can measure the effectiveness of changes in terms of whether these
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modifications have met with the needs of consumers or not. It includes seasonality,
market changes, etc.
 Individualized CLV: In this, Homebase Company determines the value created by
individual customers in business through various channels (Verhoef and Lemon, 2013). It
includes social media, digital marketing, etc.
 Average revenues' calculation per user: It is another component that helps in
determining profit generated through particular customer (Xu, Peak and Prybutok, 2015).
(b) (P2) Benefits of customer lifetime value
Customer lifetime value plays a significant role in the organisation. Through CLV,
Homebase can get many benefits and improve its operational efficiency to a great extent.
Benefits of this approach are explained as below:
 CLV approach is an effective tool that helps in determining actual assets of Homebase.
These assets' identification helps organization in identifying its own financial position in
market. By this way, it can make strategies to utilize these assets in an effective manner
(Rihova, 2015).
 CLV is helpful in segmenting customers as per their value in business. Each person has
different value in firm. There are some customers that create high value to entity.
Through this approach, Homebase can make customer segmentation and identify its
potential buyers (Kim, 2015).
 CLV is an effective process that assists in resolving issues and minimizing complaints
from customers. If entity knows about potential customers then it will try to offer them
quality services so that they will become loyal towards the brand. Thus, complains get
solved soon and it makes them loyal towards the entity (Ramaswami, 2016).
 Customer lifetime value is beneficial in sustaining customers in the brand for longer
duration. It always tries to satisfy consumers by offering them quality products and
services. By this way, Homebase firm can retain its loyal consumers in the firm for
longer duration (Kotler, 2017).
 CLV is beneficial for organization in enhancing profitability of company. It always tries
to hold customers who create value to the business so that these people will spend money
in the firm. This helps in generating high revenue in the corporation.
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(c) (P3) Factors that influence CLV
There are various factors that affect the customer lifetime value. All these factors highly
affect overall operations of Homebase Company as well (Verhoef, 2015). Description of these
elements are as below maintained:
Consumer purchasing
It is one of the most important element that influence CLV of Homebase Company. If
purchasing power of customers are changing then it will affect overall lifetime value of buyers.
Each individual buys products from the company that offers them satisfactory services as per
their requirements (Armstrong, 2015). If person is dissatisfied with the firm then individual will
not spend their money in entity. In such condition Homebase is required to provide quality
services to buyers so that they buy products from the firm frequently. This model helps in
determine purchasing power of each customers.
Company services
If services of the company are not good then it impacts on operational efficiency of the
firm. In such condition customers do not take interest in products of the firm. This impacts CLV
to great extent (Definition of 'Customer Lifetime Value, 2018).
Loyalty of customers
It is considered as another most important factor that influence overall customer lifetime
value in Homebase. If company has loyal customers then this will support entity in enhancing its
productivity and generating high revenues. But if consumers are not loyal then they can move
easily towards other competitors. In such condition overall CLV of Homebase can get influenced
to great extent (Leroi-Werelds and et.al, 2014). Loyalty of the clients are highly depended upon
brand image of firm, market share, quality of products. If entity is providing high quality services
to the consumers and resolving their complaint soon n then it can make the person loyal towards
the brand. By this way these people will frequently buy products from Homebase which will
generate good revenues to the entity.
(d) (M1) Practical application of concept of CLV
Customer lifetime value can be defined as prediction that is done through collecting
necessary information about customers (Martinsuo and Killen, 2014). By this way, entity gets to
know the value that is generated in the firm by this client. It supports firm in generating high
revenues and increasing its market share to great extent. CLV is the effective tool that assist in
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utilizing resources well and making them able to generate profit in business unit (Nagaoka and
et.al, 2016).
CLV is helpful in determining requirements of clients and identifying potential buyers.
By this way Homebase can offer them satisfactory services as per their needs and requirements.
Calculation of Customer lifetime value is done by gathering information about buyers and
accordingly their values are being measured in entity. This procedure is helpful for the
organizations B2B and B2C in generating high profit. In the B2B business, companies have to
interact with corporate clients (Armstrong, 2015). Through CLV Homebase can gain high market
share and can attract potential buyers towards the brand. B2C is another type of business in
which company has to deal with consumers. It directly provides services to end users. CLV is
effective process for the B2C business in gathering information about customers, their needs. By
this way productivity and profitability of these entities can be increased significantly (Kotler,
2017).
TASK 2
1) (P4) Types of market segmentation strategies
Consumers are the main stakeholders of the organization, they spend their money that
money is helpful in raising revenues of the company. Market segmentation supports the firm in
identifying needs of specific group of people so that entity can provide products and services
accordingly (Rihova, 2015). This is effective tool through which entity can satisfy customers and
can make them loyal towards the brand. Market segmentation strategies are described as below:
Geographical segmentation
It is the strategy that concentrate on graphical locations, on the bases of these graphic
entity segments its consumers. This helps the organization in attracting new customers and
providing them services as per the requirement s of these people. There are various people those
who live in different regions and location. Each person of particular location has different needs.
Geographical segmentation helps Homebase in providing suitable products and services to the
consumers so that they feel happy (Xu, Peak and Prybutok, 2015).
Demographic segmentation
It is another kind of segmentation strategy in which company considerer demographic
characteristics in order to segment consumers. This includes, age, gender, income etc. All these
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Different age group people have different needs thus, by segmenting consumers on the bases of
demographic characters' entity can provide them products as per their requirements. It helps in
attracting various customers towards the brands (Verhoef and Lemon, 2013).
Behavioural segmentation
It is the type of segmentation strategy in which entity emphasis on behaviour of particular
consumers and accordingly it makes group of these people those who have same behaviour and
offer products to them accordingly (Leroi-Werelds and et.al, 2014).
2) (P5) B2B and B2C decision making models
B2B and B2C both these enterprises implements various kinds of decision making
models. These models helps consumers in making sound decision and fulfilling their needs
effectively. By this way entity becomes able to meet with the needs of clients and creating value
for the organization (Ramaswami, 2016). Decision making is highly depended upon
requirements and attitude of particular buyers. They generally prefer to buy things that can meet
with their requirements or for whom they are positive.
B2C business implements decision making model where it involves sales and marketing
departments in order to identify needs of particular buyers. As in the B2C business companies
has to directly interact with consumers. If marketing and sales team members are involved in this
process then they will be able to gather information about needs of buyers. This will support
business in making sound decision for the growth of business unit (Leroi-Werelds and et.al,
2014). In this decision making model, decisions of the firm gives benefit to the firm for longer
duration.
B2b decision making model pays more attention on developing healthy relationship with
consumers. There are many corporate consumers those who have many options to buy these
goods and services. If entity has strong relationship with them then it can make them loyal and
can retain in the firm for longer duration (Martinsuo and Killen, 2014). It is effective model that
can assist in raising productivity of the business unit and increasing its market share.
3) (M2) Various segmentation models in B2B and B2C
Customer segmentation is most important part of organizations. Homebase is required to
segment consumers properly so that it can gather needs of clients and can offer them products
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that can meet with their requirements (Stark, 2015). Various segmentation models are described
as below:
Segmentation on the bases of needs
Homebase is the global brand that offers services across the world. Company
concentrates on needs of target customers and provide them services accordingly. This type of
segmentation allows entities in providing satisfactory products to potential buyers and satisfying
them. Homebase applies this segmentation model in which entity carries out market research and
identify specific needs of buyers (Armstrong, 2015). By this way entity becomes able to provide
satisfactory products to the consumer sand retaining them in the firm for longer duration. This
supports in making people loyal towards the brand. These loyal customers create value to the
business unit to great extent. . Homebase always gives priority to complaints of these people so
that they feel happy in the company and do not move towards competitor brands (Ramaswami,
2016).
B2B is another type of business that implements other segmentation model in the firms. It
takes into consideration needs of service users. It analysis buying process of corporate
consumers. It understands which kind of products they prefer and accordingly entity provide
them services (Armstrong, 2015). It develops strong relationship with the buyers so that they
trust on the corporation. This model assist B2B business in conducting their operations in smooth
manner and generating profit in the firm.
TASK 3
1) (P6) Models to increase customer relationship and loyalty
Customer relationship is considered as one of the most important aspect of business unit.
It assists the firm in making people loyal and making them positive towards the brand.
Homebase always concentrates on developing healthy relationship with its valuable consumers
so that it can retain them in the firm for longer duration. Customers relationship management is
the essential strategy for the growth of the entity, by this way entity can gain competitive
advantage and ca n enhance its revenues as well (Definition of 'Customer Lifetime Value, 2018).
Cited firm always look at the needs of the consumers and accordingly it offers them products and
services. Each buyer has certain expectation with the brand and if entity is able to meet with their
expectations then it can assist in developing healthy relationship with the consumers and make
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them frequent buyers of the brand. There are several techniques of developing relationship with
consumers that can be implemented by Homebase (Leroi-Werelds and et.al, 2014). These are
discussed as below:
Paying more attention of customer satisfaction
It is one of the effective technique that can be implemented by the cited firm in order to
build healthy relationship with the consumers. Customers are the key stakeholders of the
business if they are satisfied with products and services of business then they give positive
feedback to others. It helps in developing relationship with them. Company has to identify their
needs and accordingly have to provide goods and services to them (Martinsuo and Killen, 2014).
Furthermore, entity has to give priority to the complaints of consumers and have to resolve these
issues soon. This can help in enhancing bonding with customers.
Recruitment of skilled workers
Homebase should always involve skilled employees in the workplace. Talented staff
members are able to deal with the consumers well and satisfying their needs. When workers
behave well and provide the clients effective services then it makes the person loyal towards the
brand and they always prefer to buy things from the same shop (Stark, 2015).
Analysis customer buying pattern
It is another great strategy that can help in developing relationship with the buyers. By
analysing buying pattern of the consumers, entity can provide them goods as per their
requirements. This can help in satisfying them and enhancing their retention.
2) (M3) Methods apply at different stages of consumer decision making process
There are several methods that can be implemented by Homebase at different stages of
consumer decision making process. One of the effective technique is sending regular updates an
effective communication with the clients. If cited firm makes proper coordination with the
customers then it will support the entity in gaining attention of the buyers. This is the ways that
assists in influencing decision making process of customers to great extent. On other hand
creating band loyalty is another type of technique that can be applied by the entity (Verhoef,
2015). If the corporation has strong brand image then it helps the firm in managing operations
well and creating positive image in the mind of customers. By this way buyers buys things from
the firm and gives positive feedback to others as well.
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3) (D1) Key concept of CLV
Customer lifetime value is the key concept that define monetary value that generated by
particular customers in the business unit. It is considered as one of the important conceptual
framework that encourages firms in paying more attention on quarterly profits by developing
long term relationship with the consumers (Xu, Peak and Prybutok, 2015). It can be defined as
present value of business with reference to future cash flow. Each customer creates value to the
business that help the organization in generating high profit. For that firms always try to build
healthy relationship with the consumers, so that it can retain these buyers in the workplace for
longer duration. Each entity has to spend some amount in order to provide satisfactory services
to the consumers so that they feel happy and satisfied.
This cost is being deducted from the actual profit generated by the firm (Ramaswami,
2016). This net amount is considered as value of clients to the business. The main purpose of
calculating CLV is to analysis financial value of each consumers. This concept is completely
different from customer profitability. Customer segmentation is one of the key areas in CLV
measurement. If entity has segmented the consumers in appropriate manner then it can help in
identifying needs of specific group of people. That aids in providing them satisfactory products
so that organization can enhance value of consumers and can motivate them to spend more
money in the firm. This increases value of customers in the business unit (Definition of
'Customer Lifetime Value, 2018).
CONCLUSION
From above report, it can be concluded that customers are the life blood of business and
if they are satisfied with products and services of entity, then they spend more money in
business which enhance profitability of firm. All customers create some value to the
organization and thus, entities always concentrate on making these people feel happy and
satisfied so that they will become positive and loyal towards firm as well as spend more on
purchasing the products and services of enterprise. It is very important for the business to
develop a healthy relationship with consumers so that CLV can be enhanced.
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REFERENCES
Books and Journals
Armstrong, G., 2015. Marketing: an introduction. Pearson Education.
Kim, J., 2015. The contributions of firm innovativeness to customer value in purchasing
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Kotler, P., 2017. Customer value management. Journal of Creating Value. 3(2). pp.170-172.
Leroi-Werelds, S. and et.al., 2014. Assessing the value of commonly used methods for
measuring customer value: A multi-setting empirical study. Journal of the Academy of
Marketing Science. 42(4). pp.430-451.
Martinsuo, M. and Killen, C.P., 2014. Value management in project portfolios: Identifying and
assessing strategic value. Project Management Journal. 45(5). pp.56-70.
Nagaoka, H. and et.al., 2016. Development of Methods for Visualizing Customer Value in
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Ramaswami, S.N., 2016. Divided attitudinal loyalty and customer value: role of dealers in an
indirect channel. Journal of the Academy of Marketing Science. 44(6). pp.770-790.
Rihova, I., 2015. Conceptualising customer‐to‐customer value co‐creation in
tourism. International Journal of Tourism Research. 17(4). pp.356-363.
Stark, J., 2015. Product lifecycle management. In Product Lifecycle Management (Volume
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Verhoef, P. C. and Lemon, K. N., 2013. Successful customer value management: Key lessons
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Verhoef, P.C., 2015. Advances in customer value management. Handbook of Research in
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Xu, C., Peak, D. and Prybutok, V., 2015. A customer value, satisfaction, and loyalty perspective
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Online
Definition of 'Customer Lifetime Value. 2018. [Online]. Available through
<https://economictimes.indiatimes.com/definition/customer-lifetime-value>.
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