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Marketing IIB (Retail Management) Chpt.7 - Customer Lifetime Value
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Importance of CLV, its calculation, and strategies to improve it.
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Retail Management by ProfessorBurgerQueenCustomer Lifetime Value
- Customer lifecycle value (CLV) represents the amount of money a customer is
expected to spend with a retailer throughout their relationship with the brand -
which is a measure of the value of a customer to a retailer overtime;
- CLV considers the revenue generated from the customer's purchases and factors like
the frequency of purchases, the average transaction value, and the length of the
customer's engagement with the retailer.
- CLV is used to understand the long-term profitability of individual customers and
guide various business strategies, including marketing, customer retention, and
resource allocation.
- CLV can be used to measure customer loyalty. The retail industry is highly
competitive, and retailers must consistently work on mitigating customer churn.
Keeping existing customers is cheaper than acquiring new ones. Therefore,
maintaining a high CLV is at the heart of every business’s success.
Importance of CLV in Retail
- CLV assists in determining the financial value of each customer a retailer has;
- CLV assists retailers in looking into the future to determine which products should be
sold, and mostly importantly, assist in determining how to serve the customer better
by forecasting future customer purchasing behaviour;
- The evaluation of CLV assists retailers in estimating the variables such as the churn
rate, purchase rate, and average spending, which are all impacted by customer
loyalty programs, and satisfaction;
- Research has found customer satisfaction and commitment as the predictors of CLV;
- CLV assists in determining customer segmentation (a marketing strategy that divides
customers into groups based on gender, age, buying patterns and interest); assesses
competitors; customisation of marketing information.
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