The concept of LTV
In spite of
the obvious short and long term benefits, the concept of CLV - Customer Lifetime Value - is hardly ever
used outside certain industries with high acquisition costs. In this article
loyalty expert Bent Svanholmer of Loyalty Management gives you an introduction
and points out how you can work with CLV in your company.
1. Introduction
Based on more than 30 years of experience from
creating and implementing loyalty strategies it is both my conviction and proved experience
that CLV is the best basis of decisions concerning the market and customer strategy.
The reason being that CLV is an economic
concept, where managers base their market investment decisions on calculations
on both the short and long term results of different alternatives. Further more that
CLV is suitable to be the main nominator in a business case concerning the
predicted result of both the actual strategy and defined future alternatives. Finally
it is a proven concept being used for decades in say the mail order business
and other direct marketing companies.
2. CLV definition
CLV is defined as:
"The net value of all net payments from the moment the
marketing efforts start towards a potential customer and
until the customer definitely stops being a customer in the company".
CLV can be calculated for potential customers,
existing customers
and past customers. Research has shown that there is not always
just one CLV for a specific customer. Thus in connection with customer WinBack
there will be two different Customer Lifetime Value (CLV): the First CLV (the
CLV before defection) and the
Second CLV (the future CLV if
winning back the customer).
If a customer defects, then the company has to
calculate a second CLV in order to decide whether to invest in winning back the customer
or not.
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