Applications of CRM in B2B and B2C Scenarios Part I
This chapter defines the concept of Customer Lifetime Value (CLV) and provides an approach to compute CLV. In simple terms, CLV refers to the net present value of future cash flows from a customer. Using a numerical example, this chapter provides the approach and formula to compute CLV. It also discusses the various drivers that can maximize CLV for both B2B and B2C firms. Further, the chapter discusses some of the proven strategies to maximize customer profitability. First, the chapter discusses the relationship between customer lifetime with the firm and the resulting profitability. Based on this relationship, this chapter discusses a model that can be used to measure the lifetime values of customers when they share a noncontractual relationship with the firm (i.e., a relationship in which customers are not bound by contracts). Second, a model for incorporating customers’ projected profitability into lifetime duration computation is discussed. This model builds on the idea and approach discussed in the first model. Finally, a model for identifying the true value of a lost customer is also discussed.
- Bolton, R. N. (1998). A dynamic model of the duration of the customer’s relationship with a continuous service provider: The role of satisfaction. Marketing Science, 7(Fall), 17–23.Google Scholar
- Direct Marketing Association. (2007). Direct marketing expenditures account for 50% of total advertising expenditures, DMA’s 2007 ‘Power of Direct Marketing’ report unveils. DMA: Direct marketing association; conferences, seminars, research & articles. http://www.the-dma.org/cgi/disppressrelease?article=1015. Accessed October 16, 2007.
- Direct Marketing Association. (2009). What is the direct marketing association? DMA: Direct marketing association; conferences, seminars, research & articles. http://www.the-dma.org/aboutdma/whatisthedma.shtml. Accessed July 26, 2011.
- Dowling, G. R., & Uncles, M. (1997). Do customer loyalty programs really work? Sloan Management Review, 38(4), 78–82.Google Scholar
- Hirschman, A. O. (1970). Exit loyalty and voice. Cambridge, MA: Harvard University Press.Google Scholar
- Kesler, L. (1985). Steak company welcomes customers’ grilling. Advertising Age, 36(7).Google Scholar
- Kumar, V. (2008). Managing customers for profit: Strategies to increase profits and build loyalty. Upper Saddle River, NJ: Wharton School.Google Scholar
- Kumar, V. (2007). Customer lifetime value: The path to profitability. The Netherlands: NOW Publishers, Inc..Google Scholar
- Kumar, V., & Ramani, G. (2003). Taking CLV analysis to the next level: A multistep approach to better understanding customer value. Journal of Integrated Communications, 2004, 27–33.Google Scholar
- Li, S. (1995). Survival analysis. Marketing Research, 7(Fall), 17–23.Google Scholar
- Quick, R. (2000). New study finds hope for internet retailers. April 18. Wall Street Journal, 4/18, A2.Google Scholar
- Reichheld, F. F., & Sasser, W. E. (1990). Zero defections: Quality comes to services. Harvard Business Review, 68(5), 105–111.Google Scholar
- Reichheld, F. F., & Teal, T. (1996). The loyalty effect. Boston: Harvard Business School Press.Google Scholar
- Reinartz, W., & Kumar, V. (2002). The mismanagement of customer loyalty. Harvard Business Review, 80(7), 86–94.Google Scholar
- Valentino-Devries, J. (2011). With catalogs, opt-out policies vary. April 14. The Wall Street Journal. http://online.wsj.com/article/SB10001424052748703841904576256750393074920.html. Accessed July 26, 2011.
- Wyner, G. A. (1999). Customer relationship measurement. Marketing Research: A Magazine of Management and Applications, 11(2), 39–41.Google Scholar