Customer Marketing – Customer value

Customer marketing > Customer value, Customer lifetime value and High value customer segments

How much is a customer worth to your business?  Not just this year but over the average customer lifetime?  Managing customer value can be a powerful part of an effective customer relationship marketing (CRM) strategy.

For an introduction to a basic calculation of customer lifetime value (CLTV), click here.

In most businesses, some customers are worth more than others.  So understanding customer value and customer lifetime value tells you a great deal about your business.  A good starting point – but the real opportunity comes from understanding differences in value.  Some customers spend more, and stay longer.  Your high value customers contribute much more to your business performance than the average customer.  Low value customers might actually be losing you money.

This degree of financial detail isn’t the natural territory of marketing, so working with your colleagues in the finance function helps you to get there quicker, and makes sure that your friends in finance are onside from the start.

Managing customer value segments played a large part in planning marketing activity at British Gas and at Hertz car rental.

At Hertz differences in customer value matched different levels of loyalty programme membership.  Analysis established that members at the top of the pyramid spent an average of 20 times more, purchased an average of 12 times more often, and were much more likely to continue to be an active customer for longer.

At British Gas we combined customer value with likelihood to churn to focus customer retention on higher value customers who were most likely to leave.  Across more than 12 million British Gas customers this focus led to more than a quarter of the most valuable customers taking up a retention offer, keeping high value customers who might otherwise have left for competitors.

So there can be real opportunities in understanding the value of your customers, differences in value between customer groups and the overall lifetime value of your customers.  Then treating your best customers differently as part of your customer relationship marketing (CRM) strategy.

Click here for an example of business performance improvement through understanding customer value.

Click here for a case study in customer segmentation from British Gas including applying customer value.

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