Question :
As a newly appointed marketing manager you had to ensure employees lift the profit made by firm thus concept of customer value matrix is introduced for earning revenues.
- Define CLV and ways to measure customer lifetime elements & values that are affecting the working of the Homebase.
- Explain components of creating customer base & opportunities for developing high customer value at the Homebase.
- Critically evaluate methods & techniques for increasing customer lifetime value.
Answer :
INTRODUCTION
Customer value management is defined as the analysis of the customer perception about the products or services offered by an organisation . It also includes the thinking of clients about the value for money paid for purchasing goods and services. In present scenario, due to stiff competition, it has become essential for business to focus on catering the need of workers and provide them with high value. As this strategy will assist firm in maintaining the position in the market as well as increasing sustainability. Customer value management assists business entity in increasing sales as well as profitability. It also provides firm an opportunity to gain customer loyalty and retain profitable client for long time. An organisation can increase customer value by adopting the customer centric management approach. This approach will also help manager in determining the factors which drives value for customers. It also assists business entity in identifying the resources as well as techniques which can be utilised for improving business performance.
Purpose of project is to develop the understanding about the concept as well as the importance of customer value management in context of Home base organization. It also emphasizes on analysing the factors which influence customer lifetime value.
TASK 1
P1 Analysing the several components which enables an enterprise to determine and evaluating customer lifetime value
Customer lifetime values is considered to be as an effective tool which is generally utilised by companies for retaining the customers for long time and providing client high level of satisfaction. Market research is considered to be a suitable technique which can be used by Home base company for analysis the marketing position and also customer perception about the value provided by firm. It will also assist business entity in identifying the performance gap and determining the area of improvement. Home base organisation is recognised as a British home improvement and garden centre which is operating in retail industry. Objective of business entity is to provide high value to its client and return to stakeholders. Management team in an organisation has taking the high initiatives for providing h level of satisfaction to customer by adopting several methods and techniques such as introduction of attractive offers , discounts etc. This strategy has helped firm in attracting more number of customers and increasing sustainability. It has also provided business entity a chance to increase sales as well as profitability and gain competitive advantage in the market.
Customer lifetime value is also defined as prediction or estimation of net profit attributed to the entire future relationship with a customer. It also includes the analysis of firm potential to grow. In other words, success as well as development of an organisation is totally dependent on the value or satisfaction gained by customer by consuming goods or services offered by company. Customer life span, client churn rate, average profit margin, sales etc. are some variables or component which will assist manager in analysing the customer lifetime value.
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There are different techniques that can be utilized by the manager of a home base organization for measuring the customer lifetime value. Some methods are;
Historic customer lifetime value:It includes the analysis of the information or data which belongs to the previous year financial records. In this method all the decision are taken by manager in an organisation on the basis of the existing financial performance of company. Historic customer lifetime value method calculation of profits which are earned by an enterprise during previous financial year. This method of calculating the lifetime value include the evaluation of profit earned by firm from all historic purchases from an individual client. The major disadvantage of utilising this method is that there are high chances misleading results when the company, the market, or both have changed. Advantage of utilising Historic customer lifetime value method is that, it assists manager in identifying the customers those who have contributed towards the increasing of profitability by firm.
Predictive customer lifetime value: In this methodof calculating customer lifetime value, the prediction about the future sales as well as profitability by an organisation is made by manager on the basis for past transaction history. The significant advantages of this technique is that it helps business entity in analysing the buying pattern as well as buying behaviour of customers As long as the equation is accurate, this value will become more faithful with every purchase and interaction. Predictive customer lifetime value techniques is completed based on the behavioural pattern of consumers. It helps manager is analysing the satisfaction gained by client and determining the level of improvement required to be made by an enterprise in context of customer lifetime value.
It is required by management team in Home base company to develop the understanding about the fact that there certain factors which has direct as well as significant influence on buying behaviour of client. Some such variables are product or service quality, previous experience of an individual, personal factors, economic conditions , changes in trends and other social constituents etc. All these factors or elements are required to be considered by manager in an organisation when developing the product or formulating the strategies for increasing customer value.
In addition to these methods, one of the technique which can be utilised by management team in Home base organisation is they can calculate the revenue earned by an individual customer. Formula is
Average revenue per customer * client relationship with organisation during specific year- cost of acquisition.
Cost of acquisition includes investment made by an organisation on marketing or other activities for attracting customers. Summing up the revenue earned from a single customer during particular year. It supports financial manager in planning the budget and determining the expenses which are required to be incurred on the marketing or promotional activities.
Traditional customer lifetime value- In this technique of calculating the customer lifetime value complete equation can be breakdown into individual costs and profits of specific year. There are various elements required for calculating the customer lifetime value utilising this method are gross margin per client life span, consumer retention rate, and rate of discount.
Equation for evaluating the customer lifetime value is
Gross margin* retention rate /{1+rate of discount-retention rate]
The advantage of utilising traditional customer lifetime values is that it supports manager in identifying the fluctuations in revenue generated from customers during the special period. By using this technique' management team in Home base company can easily recognise the way discounts can be adjusted and profit margin can be maintained.
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