As more companies adopt customer lifetime value strategies, do firms need to adopt a new measurement approach to avoid losing influential customers?
The idea that companies should consider the lifetime value of their customers has become one of the core premises of sophisticated marketing over the past decade. By taking the longer-term view, companies can optimise their customer relationship strategies. The customer lifetime value can be used to drive decisions such as which customers to target, how much to spend on acquiring them, and how best to serve them to ensure that they remain loyal for years to come.
Airlines, for examples, have long been known to reward their most frequent flyers and those that spend more on high-cost fares. Casinos are also known to treat their high rollers to various indulgences such as free drinks, meals, and accommodation. However, applications of the lifetime value concept can be found across industries and products.
- Telephone and cable operators have devised extensive promotional plans that entice consumers with lower rates for the six months or even as long as a year, hoping to generate greater profits for many years after the promotional rate expires.
- Banks, which traditionally have had a hard time relating to customers across product lines, are increasingly developing a holistic view of their customers. It is not uncommon for a bank to offer customers lower rates on loans, for example, provided they also open a checking account with direct deposit of their salary.
- Some of the lifetime value applications are more difficult to detect. For example, a high lifetime value customer calling the company’s support line may be routed to a special queue with shorter wait times and higher-level experts on the other side of line.
But how is customer lifetime value measured? As more companies adopt customer lifetime value strategies, the question becomes more critical.
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