The old cliché says that it is far cheaper to retain a customer than to get one. Prajakt Raut says that to retain a customer an organisation must provide, continuously, better service or value than anyone else in the industry.
Perception of better value is the most important reason for a consumer to stay with a brand.
When the brand’s benefit is taken care of, it should focus on increasing the revenue that it derives from that customer… and giving even better value. Retaining customers and selling more to them is what helps you get higher ‘lifetime value’.
• To get lifetime value, an organisation must calculate the potential value of the customer for the duration of the time he buys your brand.
For example, in the case of an Internet service provider, the customer will need the service till he dies. But in the case of contact lenses, the person leaves the category when he reaches the age of 40-45 (then he goes on to bi-focals, etc).
• The focus of the organisation should be on maximising the share of its brand in the purchase of that service by the customer.
If a customer is going to buy internet subscription for 25 years, how, can I ensure that he stays with me for, say, at least 20 years?
• In most categories, an organisation can drive up the revenue earning potential from a customer by upgrading or cross selling.
How can I upgrade a customer for a dial-up connection to a leased line? Or how can I market more ‘value added services’ or premium products to the customer?
How can an organisation use the concept
An organisation can use the Iifetime value concept in the following ways.
• Create multi-level loyalty programmes on the basis of potential lifetime value
• Create incentive packages (with or without loyalty/rewards) based on the potential lifetime value
• Use the concept to make marketing investments (where the investments are evaluated on a per customer basis)
• Invest in the customer on an on-going basis – which helps you evaluate and track ROI
• Front load marketing investments in the beginning of the relationship – to give you a bigger incentive to try your brand for the first time
• Keep the incentive towards the middle or end of the relationship – this helps you create ‘exit barriers’
• Segment customers on the basis of potential lifetime value and target communication messages to these segments.
• Analyse data on purchase patterns / usage habits to define more profitable consumer segments and divert marketing monies towards them.
As brands become less differentiated, they look beyond product differentiators as platforms to compete on. One key factor, and one that adds to the one critical differentiator, is emotional equity. This is the quality of service / value-add that the brand gives the consumer outside the benefit of the product.
Companies must create value in staying with the brand. They must use the potential of cross-sell / up-sell with incentives, or partner with other organisations to offer higher value to create emotional or incentive-based exit barriers for the customer.