Lifetime Value of the Customer

Part III – Total Lifetime Customer Value

Customer lifetime value is a formula which helps a marketing manager to arrive at the value associated with the long-term relationship with any given customer. It reveals how much a customer relationship is worth over a period of time. This formula becomes very useful in considering acquisition processes and in selecting optimal service levels to provide different customer groups. The development and retention of profitable customer relationships is extremely important for every business. Companies need to be concerned with the future revenue and profit streams associated with the ongoing satisfaction and retention of their core, profitable customers. The companies which fail to recognize all that usually overspend in marketing to acquire and retain less profitable or even unprofitable customers and do not spend enough on keeping profitable ones.

After calculating the lifetime value of each segment given in this assignment we recommend to focus marketing efforts to acquire and retain clients from Segment C because this is the most profitable segment. Its lifetime customer value is very high (1.951,48 Kuna) and there are 3000 clients in this segment. (Table 3) Lifetime customer value of Segment A is the highest (2.384,03 Kuna) but there are only 1000 clients in this segment. (Table 1) This means that total lifetime value of Segment A is lower than total lifetime value of Segment C and that is the reason why we recommend focusing on Segment C. We also recommend to discontinue service to clients in Segment B because they are unprofitable: there are only 500 clients in this segment and their lifetime value is negative (-409,09 Kunas). (Table 2)

Table 1 Lifetime Value of the Customer – Segment A

Customer Retention | 90% | | | | | | | | | | |

Customer Life | 10,0 | | | | | | | | | | |

Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |

Customer Margin | 0 | 600 | 600 | 600 | 600 | 600 | 600 | 600 |...