Saturday, February 7, 2009

In this difficult economy, when customers are scarce and profits even scarcer, how do you think about Customer Lifetime Value (CLV)?

This Microsoft Office template shows some of the basic numbers you need to calculate CLV. Also check this Harvard Business School calculation tool for more detail. Both are a great start in determining the long-term bottom-line value of a customer.

Every business must have or be able to get these inputs--it's impossible to make informed marketing decisions and properly evaluate results without knowing acquisition cost, customer retention rate, and so on.

Customers are precious. No business can stay afloat in 2009 or through 2019 if it doesn't keep the C in CLV. So:

1. Emphasize benefits. Bring back the old USP (unique selling proposition) and tell customers what problem your offering will help them solve or what goal it will help them achieve. Sizzle is nice, but steak is nicer.

2. Take a fresh look at your competition. This is doubly important in a world where customers are counting their pennies and your competition is, in the larger sense, any other purchase that customers might make. What substitutes exist for your offering? Why should customers buy your offering, and why now? What makes it competitively superior? Be sure to communicate your advantage.

3. Resist the urge to handcuff your customers. Charter, my local cable company, called to offer me a special deal. The rep mentioned a 24-month agreement and I almost missed the part about the early cancellation fee. I didn't want to be handcuffed--do you? All those heating fuel customers who signed $4/gallon winter contracts are fuming about being handcuffed. How many customers will stay when the handcuffs come off?

4. Think long term. The whole point of CLV is to gain in the long run by satisfying customers the first time and every time they buy from you. Transactional thinking may keep your business solvent this year, but what about next year? It's expensive to acquire new customers and less costly to keep existing customers. The longer your customers stay with you, the more they buy, the higher their CLV and the more prosperous you'll be.

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