Enhancing Customer Lifetime Value

5 Jun

Good marketers understand the importance of customer loyalty and that there is a long-term value to repeat customers.

As Cynthia Clark writes for 1to1 Magazine: “The most forward-looking organizations are making sure that their efforts to acquire new customers have long-term results. These companies are putting a lot of focus on creating the best experience possible that will make customers want to return. In a bid to have a long-term view of their clients, the savviest companies are trying to calculate their customers’ lifetime value. In their book Return on Customer, Peppers & Rogers Group founding partners Don Peppers and Martha Rogers, Ph.D, describe a customer’s lifetime value as ‘the net present value of the future stream of cash flows a company expects to generate from the customer.’ The authors explain that customers create value for a company by increasing both current and future cash flows. Therefore, if based on a good experience a customer decides to do more business with that company, the organization has gained instant value. ‘It doesn’t matter that the extra business a customer might give a company won’t happen for a few months or a few years—the customers’ intent has changed already, and so the customers’ lifetime value (LTV) went up immediately, in the same way a share price would go up immediately if the company were suddenly expecting better profits sometime in the future,’ Peppers and Rogers argue.”

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