Consumer Lifetime Value (CLV)

Introduction

Customers Lifetime Value (CLV) is a concept used in marketing for customer’s acquisition and retention (Dwyer, 1997). CLV can also be used to differentiate between customers on the basis of their loyalty. In this paper, I would like to shed light on my opinion about the concept of CLV. Furthermore I would also be providing my opinion about the depth of CLV and the different variables that can be associated with the application of CLV for marketing purposes. I would then provide my opinion about the importance of why there should be a differentiation between customers with low and high CLV.

The concept of CLV

I do agree to the concept of CLV. I would personally love to be graded high on the CLV lists of a company that I trust and do business with. This is a great way to pay back to a customer based on the frequency of their doing business with a company. CLV can be a great tool to retain customers with a certain limit of loyalty to a business. Knowledge of the measurement of a CLV is a great tool to build long term relationship with customers who are considered to bring in more profits (Stahl, Matzler & Hinterhuber, 2003). Once a company is aware of the purchasing power and needs of a customer, it should devise a plan to target that customers by offering something that would be attractive to that customer and prevent him/her from approaching a rival company.

Lacy’s & Morgan’s (2007) opinion

In my opinion, what Lacy & Morgan (2007) have suggested to be the depth of CLV is the different variables that can be studied by companies to understand the overall purchasing behavior of the customer. For example what are the different items that the customer shops more than others? What is the amount of money the customer spends in a certain period of time? How does the purchasing behavior of the customer proceeds and how quickly a decision is made? Is the customer paying for goods with a credit card or in cash? All this information can help the business measure the CLV and then make offers accordingly. For example if a customer stays at a hotel once a month, the hotel can afford him/her a free meal at their restaurant on each visit. On the other hand if a customer visits the hotel once a year, the hotel may not be able to offer a free meal.

Customers with low CLV

Research has indicated that long time customers bring more profit to a business than those customers who may not revisit the business so often (Jain & Singh, 2002). CLV is directly related to customer’s loyalty. If a business has been successful in gaining the trust of a customer, it should invest more in that customer and offer him/her discounts and other exclusive offers than those customers who have not shown that amount of trust. There has to be a limit for a business to try and win the loyalty of a customer.  If a customer is not willing to invest his/her time and money in the product or service of a company, the company should grade him/her with low CLV and stop investing in marketing to them. In my opinion it would not be losing an opportunity but saving valuable resources and investing them on customers with high CLV.

Conclusion

I would like to conclude my discussion by pointing out the importance of measuring CLV correctly. If a firm is able to measure the CLV correctly, it can take measure to retain the most valuable customers. But on the other hand if there are deficiencies in measuring CLV, business decisions can be made that could lead to wasting business opportunities with potential long term customers.

References

Dwyer, F. R. (1997). Customer lifetime valuation to support marketing decision making. Journal of interactive marketing, 11(4), 6-13.

Jain, D., & Singh, S. S. (2002). Customer lifetime value research in marketing: A review and         future directions. Journal of interactive marketing, 16(2), 34.

Stahl, H. K., Matzler, K., & Hinterhuber, H. H. (2003). Linking customer lifetime value with        shareholder value. Industrial Marketing Management,32(4), 267-279.