Marketing Discussion

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Consider the lifetime value of customers (CLV). Choose a business and show how you would go about developing a quantitative formulation that captures the concept. How would organizations change if they totally embraced the customer equity oncept and maximized CLV?

Suggested Response
A) CLV describes the net present value of the stream of future profits expected over the customers’ lifetime purchases. Each student’s example will differ but the main tenets of each report should include the following:

1) Add:
a) Profit from a sale (dollar or percent).
b) Number of sales per customer per year.
c) Average age of a customer.
d) Average expected lifespan of a customer.
2) Subtract:
a) Appropriate discount rate.
b) Costs of attracting one customer.
c) Selling one customer.
d) Servicing one customer.
B) Organizations would change by beginning to take a long-term perspective rather than a short-term (quarter-to-quarter view). No longer viewing a customer as a “transaction” but rather as a “lifetime value” solidifies and demonstrates the impact that a single consumer has to a firm in a language they understand—dollars. Firms would begin to customize offerings and messages to each customer, ensure that retention strategies are in place, differentiate customers in terms of needs and value to the company, and build stronger relationships with key customers. Because of a change in the loci of focus for the firm, strategies, and actions based upon which would provide the best return on its marketing investments would be implemented
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