The Loyalty Guide: The importance of Customer Lifetime Value

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By: RickFerguson |

Posted on May 26, 2016

Through June 30, Wise Marketer subscribers can take advantage of a special discount offer: Purchase the Loyalty Guide 7 at just US $900 - that's a 56% savings off the $1,600 retail price! In this excerpt from the LOYALTY GUIDE 7, published by the Wise Marketer Group, we discuss the importance of measuring Customer Lifetime Value (CLV). In theory, building customer loyalty increases company profits. But how can we measure accurately the effect an investment in loyalty will have on the future of the business?

No method of measuring the effectiveness of loyalty programmes is is perfect. Measuring the effect on Customer Lifetime Value (CLV) is one of the best ways - particularly if managing and maximising profitability over the complete customer life cycle is the goal.

The positive correlation between customer loyalty and company profit is not a new and revolutionary idea; forty years ago international management guru, Peter Drucker, said: "It is the purpose of a firm to create satisfied customers" and Theodore Levitt said: "... satisfaction is an important basis for loyalty, which is the key to profitability". Within the marketing arena, the correlation has been expressed even more directly by statements like: "It's 3-5 times as expensive to acquire a new customer as it is to keep an existing customer", and "The best 20% of customers contribute 80% of the company's net profit."

Comparing loyalty with profitability is the best measure of success. While most managers and marketers agree with such statements, few companies are able, due to a historical lack of focus on the correlation, to confirm them using their own data. In addition, the calculations required to analyse long term correlations are quite complicated. Over the past decade, business managers and marketers have become increasingly interested in learning about the loyalty/profitability correlation, leading to more research of customer loyalty (e.g. the causes of customer churn and defection), and the implementation of many loyalty programmes and CRM initiatives.

But despite this interest, most managers still have a number of unanswered questions, including:

  • Who are the most loyal customers and who are the most disloyal?
  • Who are the profitable customers and who are the unprofitable customers?
  • How do we calculate the yield from an investment in customer loyalty?
  • How much do we have to invest to acquire each new customer?
  • How much do we have to invest to retain an existing customer?
  • How much do we have to invest to develop existing customers into 'total' customers?
  • How much do we have to invest to win back each defected customer?
  • How should we allocate our marketing budget for the optimal return?

The Loyalty Guide 7 looks closely at customer lifetime value, customer loyalty, and customer profitability both in theory and in practice. Different methods of calculating the effects on return on investment (ROI) from increasing customer loyalty are detailed. The main emphasis is on the calculation of customers' lifetime value, including the basic theory, hypotheses, models, and the tools that help managers to use these calculations in practice.

Among the key issues covered in this chapter:

  • Calculating the cost of keeping customers - or letting them go
  • How to calculate customer profitability and lifetime value
  • Examples of the calculation of customer lifetime value
  • CLV models and CLV systems (marketing ROI models)
  • The relationship between CLV, loyalty, retention, and profit
  • The ten steps of CLV toward customer loyalty and profitability

To learn more about how to calculate Customer Lifetime Value, download your copy of the Loyalty Guide 7 today.

The Loyalty Guide, long regarded as the "bible" of the customer loyalty industry, explains every aspect of loyalty programmes, best practices, concepts, models and innovations, all backed up with case studies, original research, illustrations, charts, graphs, tables, and presentation material. Learn the principles, practicalities, metrics, analysis, and bottom-line effects of loyalty, and gain the expert guidance of dozens of loyalty and relationship marketing thought-leaders, worldwide.

Now in its 7th addition, the Loyalty Guide shows you exactly how to use customer data to increase profits, reduce churn, and increase frequency, spend, and share of wallet. See how and why others have already succeeded, what works, and - more importantly - what doesn't work.

Through June 30, Wise Marketer subscribers can take advantage of a special discount offer: Purchase the Loyalty Guide 7 at just US $900 - that's a 56% savings off the $1,600 retail price!

The report's full executive summary, table of contents, downloadable samplers, and pricing/ordering are all available online - click here.

Copyright 2016 Customer Strategy Network / The Loyalty Guide / The Wise Marketer

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