UNIT IV

CUSTOMER LIFETIME VALUE: Customer lifetime value (CLV or CLTV) is a

metric that represents the total net profit a company can expect to generate from a customer
throughout their entire relationship. It takes into account the customer’s initial purchase,
repeat purchases, and the average duration of their relationship with the company.
Customer lifetime value helps you understand and gauge current customer loyalty. If
customers continue to purchase from you time and time again, that’s usually a good sign
you’re doing the right things in your business. Furthermore, the larger a customer lifetime
value, the less you need to spend on your customer acquisition costs.

WHO IS THE RIGHT CUSTOMER?

A right customer is someone whose needs are in alignment with the solution a
company offers. In a complex business world, often the customer needs are evolving at a
rapid pace.
Especially in a B2B market, where customer challenges are so contextual, it often gets
hard to find the right solution out of all the available options. They might come near but not
exactly the way it is required for a customer.
And the hard fact is they don’t know until they try. Hence, a customer with an
expectation of meeting their needs, buys the product only to find later that it was not meant
for them. Such is a case of a bad-fit customer. Where you can’t do anything about it than to
just let them go.
BENEFITS OF CHOOSING RIGHT CUSTOMER:
Apart from the obvious advantage of more revenue generation, which any customer
can bring, there are few specific points here.
Customer loyalty: Retaining the customers for long-term, especially if you are into
subscription-based business, is a must for business sustainability. With a customer whose
needs are in alignment with your solutions, it becomes much easier for them to continue their
relationship with you.
Brand reputation: When you have above average customer retention rate, your brand starts
acquiring fame through your loyal customers. Companies with a high customer attrition rate
find it hard to stay competitive in their niche.
Saves cost: When you have a targeted group for marketing you save dollars from being spent
on irrelevant audiences. Your marketing campaigns can target a smaller segment that can
produce better results. It is also cheaper and more effective to provide customer service to the
right customers.

BENEFITS OF CUSTOMER LOYALTY:

With the convergence of multiple historic global events—the COVID-19 pandemic,
international conflict, and widespread economic instability—customer loyalty is proving to
be a crucial component in a brand’s survival as well as its profitability.
When compared to new customers, loyal customers are more likely to repurchase and
spend more on repeat transactions. They are also predisposed to try new offerings from
preferred brands and refer more family and friends, compared to newly acquired customers.
In times of market instability and disruption, these loyalty behaviors form the
metaphorical bedrock on which businesses thrive and survive. And yet, by building and
improving upon those relationships with faithful customers, companies stand to gain even
more. Some of the ways customer loyalty and retention can benefit businesses include:
Improved Customer Engagement and Experience: The data generated by loyal customers
during their journeys can help personalize their own experiences and improve other customer
journeys. For example, customer experience (CX) teams find converted customers frequently
highlight delayed checkout transactions as a common area of friction. By analyzing historical
transaction data and customer behavior patterns, brands can pinpoint the cause of the
bottleneck and take steps to refine the process for future guests.
Brand Affinity: Brand affinity—a positive preference for a specific brand in a given
product/service category—is more common among loyal customers than new leads. Once
trust is established and reinforced by several positive interactions, converted customers are
more likely to share a brand’s values. Brand affinity also strengthens loyal customers’
emotional connections with a brand, encouraging advocacy and promotion.
Reduced Costs: Retaining loyal customers costs less than acquiring new leads. Marketing
and advertising costs can add up when reaching out to a broader field of prospects. In
contrast, brands spend less on nurturing smaller audiences of faithful customers.
It also takes time to break even with new acquisitions. Brands can spend weeks or
months targeting a new lead, and longer to persuade them to convert. On the other hand, loyal
customers need little persuasion to repeat transactions once they establish trust with a brand.
Increased Sales and Revenue: Repeat customers make for easier sales, compared to new
leads. Informed by experience and past impressions, loyal customers know their preferred
brand is dependable, offers good value, and provides a good experience. In contrast, because
new leads are still considering alternatives, they require more convincing before committing
to a purchase.
As Bond Brand reports, the majority of surveyed customers spend more to maximize
their loyalty benefits. Some loyal customers may not even consider prices when buying from
a known brand. This can increase sales and revenue for brands with a strong base of loyal
customers.
Reduced Attrition Rate: Loyal customers are less likely to drop out compared to new leads.
The wealth of competition—especially in online markets—makes it harder for customers to
find a source that meets their purchasing needs. Once customers find a brand they’re happy
with, they are disinclined to repeat the search process for an equally good option, particularly
if their preferred brand understands and serves their unique needs. This leads to reduced
attrition, or churn rates, and increased customer lifetime value (CLV).
First-party Data Access: Loyal customers are happy to share personal information with
brands they trust. In Bond Brands’ report, upper affluent consumers said they have greater
loyalty when a rewards program safely and securely manages their information. Thus, loyalty
affords brands access to valuable customer data that can be used to improve CX, personalize
journeys, and even create lookalike audiences. First-party information on customer identities
and activities will become even more important when third-party cookies are phased out.
Increased Customer Lifetime Value: Each time a customer repeats a transaction, they
increase their lifetime value. Multiple purchases over time also increase loyal customers’
average order value compared to first-time buyers. Brands can further increase CLV by
determining the right upsell and cross-sell offers relevant to converted customers’ needs.
In summary, the benefits of customer loyalty go beyond a simple repeat transaction. Loyalty
benefits include improved customer engagement and experience, higher brand affinity, lower
marketing and advertising costs, increased sales and revenue, reduced attrition rate, and
higher customer lifetime values. Together, these benefits help businesses thrive and survive,
despite uncertain times.

MEASURING THE EQUITY IN CUSTOMER RELATIONSHIP: Customer

equity is the sum of all customer lifetime values for a firm. In other words, we calculate each
customer’s lifetime value and we total all of these values together to determine customer
equity.
Customer equity, therefore, is the total expected profitability to be generated from a
customer base over time.It is calculated using a compounding discount rate which allows us
to consider the total expected profitability from our customer base in today’s dollars.
Should we include future customers in a customer equity calculation?
 Existing customers are known to the organization – in that we know the current level
of profit contribution, and we can estimate their retention/loyalty rate based upon our
customer base history and analysis – which means that we can generally determine the
customer lifetime value for each customer and then determine overall customer equity for the
firm.
When we include customer is likely to be acquired in the future, we may have less
information about them, but we can also make certain assumptions about their likely
customer lifetime value based upon our existing customer base – which means that we have
relatively reliable information to include future customers.
The reality is, that in today’s world of heavy social media usage, many businesses will
gain new customers whether or not they engage in marketing-driven customer acquisition
activities. This is because new customers will be attracted to the firm through referrals (both
online and off-line), information they find online, then knowledge of the brand, independent
research, and so on.
This means that, even if a firm stopped all their customer acquisition marketing
activities, that they would continue to acquire new customers.
This is a strong case to always include future customers in the overall customer equity
calculation, as the firm has earned these future customers due to their previous marketing
activities and brand building efforts.
What is the customer equity formula?
Customer equity = sum of all customer lifetime values of the current and future
customers
Note: as customer lifetime value should always be calculated using a discount rate, the above
sum will provide the total expected profitability from current and future customers on a
discounted basis as well.

An example of calculating customer equity

Assumptions For This Example Calculation:

1. We start with a customer base of 1,000 customers
2. We “win” 100 new customers each year, even without customer acquisition actions
3. The profit we make from the average customer is $2,000 per annum
4. A 10% discount rate has been used
Note: that we e are calculating customer equity assuming that the firm is NOT continuing to
deliberately acquire news customers.
While this would not happen in practice, approaching the calculation in this manner is
an effective way of measuring customer equity as it only takes into account marketing
activities up until now.
WHAT IS CUSTOMER SATISFACTION?
Customer satisfaction (CSAT) is a metric used to quantify the degree to which a
customer is happy with a product, service, or experience related to your business. This metric
is calculated via customer satisfaction surveys that ask how a customer feels about their
experience, with answers ranging between 'highly unsatisfied' and 'highly satisfied'.
Customer satisfaction is ultimately a reflection of how a customer feels about
interacting with your brand, and businesses quantify these feelings with customer satisfaction
surveys. These responses can give you a picture of customer loyalty, which predicts the
likelihood of customer referrals.
Customer satisfaction takes into account various facets of the customer experience, such
as:
1. The availability of your products
2. The purchasing process
3. The steps after purchase
4. The responsiveness of your team when resolving issues
Why is customer satisfaction important?
Customer satisfaction is important because it helps you solve problems, prevent
churn, and identify happy customers that can become your advocates and evangelists. It’s an
essential step in the process of building customer loyalty, creating customer delight, and
generating positive word-of-mouth.
If you don't measure customer satisfaction, you can't identify unsatisfied customers that could
churn or leave you negative customer reviews. You also can't identify happy customers you could
activate as evangelists or referrers. Finally, you can't predict, prevent, and proactively plan to prevent
customer churn without metrics to analyze.
Benefits Of Customer Satisfaction:
1. Customer satisfaction helps you understand where you excel.
2. Customer satisfaction helps you understand where you can improve.
3. Customer satisfaction leads to higher customer loyalty and advocacy.
4. Customer satisfaction increases customer retention and reduces churn.
5. Customer satisfaction leads to a longer customer lifetime value.

CUSTOMER: customer is an individual or business that purchases another company's

goods or services. Customers are important because they drive revenues. Without them,
businesses can neither survive nor thrive.
All businesses compete with other companies to attract customers, either by
aggressively advertising their products, by lowering prices to expand their customer bases, or
by developing unique products and experiences that customers love. Think Apple, Tesla,
Google, or TikTok.
Businesses often honor the adage "the customer is always right" because happy
customers are more likely to award repeat business to companies who meet or exceed their
needs.
As a result, many companies closely monitor their customer relationships to garner
information about customer behavior and to solicit feedback from customers on ways to
improve product lines.
Customers are categorized in many ways. Most commonly, customers are classified as
external or internal.
External customers are dissociated from business operations and are often the parties
interested in purchasing the final goods and services produced by a company.
Internal customers are individuals or businesses integrated into business operations,
often existing as employees or other functional groups within the company.
 REMAINING MATERIAL
TYPES OF CRM:
1. Operational CRM
Operational CRM streamlines the business process that includes Sales automation,
Marketing automation and Service automation. Main purpose of this type of CRM is to
generate leads, convert them into contacts, capture all required details and provide service
throughout customer lifecycle.
Sales Automation:
Sales automation helps an organization to automate sales process. Main purpose of
sales automation is to set standard within organization to acquire new customers and deal
with existing customers. It organizes information in such a way that the business can meet
customers’ needs and increase sales more efficiently and effectively. It includes various CRM
sales modules like lead management, contact management, Quote-to-Order management,
sales forecasting.
Marketing Automation:
Main purpose of marketing automation is to find out the best way to offer products
and approach potential customers. Major module in marketing automation is campaign
management. It enables business to decide effective channel/s (like emails, phone calls, face
to face meeting, ads on social media) to reach up to potentials customers.
Service Automation:
Service automation enables business to retain customers by providing best quality of
service and building strong relationship. It includes issue management to fix customers’
problems, customer call management to handle incoming/outgoing calls, service label
management to monitor quality of service based on key performance indicators.
2. Analytical CRM
Analytical CRM helps top management, marketing, sales and support personnel to
determine the better way to serve customers. Data analysis is the main function of this type of
CRM application. It analyzes customer data, coming from various touch points, to get better
insights about current status of an organization. It helps top management to take better
decision, marketing executives to understand the campaign effectiveness, sales executives to
increase sales and support personnel to improve quality of support and build strong customer
relationship.
Features of Analytical CRM:
 Gather customer’s information, coming from different channels and analyze data in a
structured way
 Help organization to set business methodology in Sales, Marketing and Support to
improve customer relationship and loyalty
 Improve the CRM system effectiveness and analyze key performance indicators, set
by business
3. Collaborative CRM
Collaborative CRM, sometimes called as Strategic CRM, enables an organization to
share customers’ information among various business units like sales team, marketing team,
technical and support team. For example, feedback from a support team could be useful for
marketing team to approach targeted customers with specific products or services. In real
world, each business unit works as an independent group and rarely shares customers’ data
with other teams that often causes business losses. Collaborative CRM helps to unite all
groups to aim only one goal – use all information to improve the quality of customer service
to gain loyalty and acquire new customers to increase sales.
 Different types of CRM applications have different features and advantages. So
before implementing CRM system, it is very much important for a business to decide future
goal and strategy.

ROLE OF CRM MANAGERS:

 Creating and executing customer relationship management campaigns that aim to
increase customer loyalty.
 Creating a set of universal customer relationship procedures and implementing them
at every level of the company.
 Analyzing customer journeys and looking to increase sales based on the received
information.
 Supervising the organization's direct communication with customers and promptly
solving any issues.
 Dividing the customer database by certain relevant customer characteristics and
personalizing the approach accordingly.
 Using existing customer information to identify new potential customers and target
audiences.
 Implementing new and more cost-efficient communication channels with customers
 Constantly testing all customer interaction procedures and making sure the most
efficient approaches are always prioritized.
 Coordinating multiple departments regarding their customer interactions and finding
ways to increase the level and effectiveness of their cooperation.
 Constantly studying the organization's direct competitors and analyzing how they
handle customer relationships.
 Communicating directly with customers and acknowledging their issues.

NECESSITY FOR ADOPTION OF CRM:

A customer relationship management (CRM) system can help a business in a number
of ways, including:
 Organizing data: CRM systems centralize customer data so that teams can stay on top
of tasks
 Improving sales: CRM systems can help sales teams close more deals faster
 Improving customer service: CRM systems can enhance customer service
 Improving profits: CRM systems can help businesses improve profits by better
judging what will sell best
 Streamlining sales processes: CRM systems can help streamline sales processes and
build sales pipelines
 Automating tasks: CRM systems can automate key tasks
 Analyzing sales data: CRM systems can analyze sales data in one centralized place
Other benefits of CRM systems include:
 Better organization
 Process automation
 Full collaboration
 Improved decision making
 Mobile performance
 Finding new customers faster
Some best practices for CRM adoption include:
 Committing time upfront to set up the instance and import and format the data
 Involving users from the start
 Reducing uncertainty and misunderstanding

SUCCESS FACTORS OF E-CRM:

 Some success factors for e-CRM (electronic customer relationship management) include:
 Operational and strategic benefits
 Top management support
 Technological readiness
 Knowledge management capabilities
 Process fit
 Customer information quality
 System support
 Customer orientation
Other success factors include:
 High adoption
 More time spent in the CRM
 Better collaboration on deals
 Better visibility across the team and the company
 Clear vision and goals
 Effective training methods
 Gathering data
 Choosing the right partner
According to a study, e-CRM success factors positively affected customer satisfaction,
customer trust, and customer retention.