Consumer Lifetime Value (CLV)

What is Customer Lifetime Value (CLV)?

Customer Lifetime Value is a measure of the loyalty of a customer to the products or services of a company (Babin & Harris, 2013). This measure helps organizations classify their customers in different categories according to their importance. If a customer is spending more of his/money by purchasing the products or services of a company over a long time, that customer will be categorized high as compared to a customer who I spending less time and money on the services of that company. Companies give rewards to their customers based on their CLV.

Do you agree with the concept of CLV?

I do not agree to the concept of CLV personally. It is not attractive to me if I think as a business owner. I have several reasons for this assumption. For example there is a customer who visit me very often but spends less money. Instead there is a potential high spender but not very frequent customer. What should be my behavior to it? If I value more the customer who is frequent, I might lose the customer who can spend more in a few visits. That is why, in my opinion, all customers should be important for a company. All customers should be given equal importance. Who know which customer may make a huge purchases in a little time than the life time purchase of a frequent customer but less spender? The reward systems for customers should include more and more customers.

What do you think of Lacy & Morgan’s’ (2007) opinion, as stated above, about the depth of CLV?

Lacy & Morgan (2007) have suggested that the preferential treatment of customer has the potential to attract more valuable customers. In my opinion their opinion about CLV is to try and to convince researchers that there is a need to observe CLV from a multifactor point of view. They suggest that the long lastingness of the customer is not the only indicator that should be used in the CLV calculation. They think that customers should be assessed for a lot more. Like when do they make how much purchases and how much they spend on each visit. In other words their purchasing behavior should be studied from their purchasing history. It is also suggested that the time that a customer takes in making a purchasing decision should also be used as an indicator. There are different modes of payment these days. For example a customer can make a payment with cash money, he/she can make an online payment or use a credit card to make a purchase. All the above data should be used to grade customers for a CLV and then all the rewards and gifts that are offered to customers should be based on these grades.

Do you think there may be a lost opportunity when companies cease to do business with customers because they have a low CLV?

I do thing that companies lose opportunities when they cease to do business with customers. I already discussed this point when I was answering the question about my agreement to the concept of CLV. Companies should not decide to cease business with customers just because they are out of touch for some time. This is a very simplistic thinking and not based on a long term base. Customers can have temporary issues life low finances. There is a question of companies also being loyal to their customer. I think this is not a good approach to simply demand loyalty from customers only. Loyalty should be a two way road. As Lacy & Morgan (2007) suggest that there should be a lot more factors to include in the calculation of CLV. I think that broadening the CLV concept and basing it on multiple variables can help in making the right decision about when to cease business with a customer due to any reason and not just a single reason.