CUSTOMER LIFETIME VALUE

Firms have now realized the importance of value of a customers purchases which the customer would make over a lifetime of clientele. Losing a single customer means losing a complete single sale which the customer would possibly be planning to make over his entire period of association with the company as a customer. Therefore it became crucial for the firms to retain existing customers instead of attracting new ones at the cost of existing ones. Gupta et al (2003) defines lifetime value of a customer as the present value of all future profits obtained from a customer over his or her life of relationship with a firm. Although attracting new customers continues to be a prime purpose of marketers, nevertheless, the focus is now shifting towards retaining the existing customers and establishing a long term adhering and absolute relationship with them. Kotler (1996) defines customer lifetime value as The amount by which revenues from a given customer over time exceed the company's costs of attracting, selling and servicing that customer. For example if an average customer spends about 50 dollars a week in a supermarket and lives in that area for almost 5 years, meaning that he will spend 12000 dollars in 5 years. If the owner of supermarket sees this customer as a sulking one, he sees his 12000 dollars flying away of this store. Store owner did not just lose a customer, he lost 12000 dollars in revenue, and this loss can even extend to a larger scale, if dissatisfied customer shares the regretful experience with other customers and making them to disengage with the store. Customers can be categorized according to their value. As the lifetime value of customers increase, customers decrease in numbers. Following picture elucidates the above mentioned notion.
MVC Most Valuable Customer MGC Most Grow able Customer BZC Below Zero Customer Lifetime value of customers increase, but number decreases

Customer lifetime value has many benefits to marketers. Having a profound understanding about the concept can make marketers to compute how much they can spend attracting a customer by evaluating the future value of that customers purchases. Customer lifetime value also imparts unplumbed understanding about the effect of customer retention on profit over long run. It also helps in expending budgets on relationship marketing in a profound manner,, which results in better relationship with customers, thus better customer retention. Customer lifetime is affected by a number of matters. Lifetime depends upon the nature of the product. If the product is long lasting and quality is up to the mark of customer expectation, customer lifetime with the product will increase. It also depends on the benefits and satisfaction from those benefits which the customer gets from the product. Market competitiveness also drives customer lifetime value. If competition is intense, customer will be having more and more choices which ultimately affect customer loyalty with one product. Customer retention strategies also play an integral role on developing customer lifetime value. If strategies are not profound and unplumbed, higher the chances are that customers will get dissatisfied and eventually will switch to other similar products. One way of engaging customers is to develop their loyalty with the product or service. Online customer magazines have become a particularly popular way of communicating with customers. They are proven to encourage loyalty, drive retention, communicate brand positioning and enhance brand awareness to name just a few - all whilst entertaining the reader - which few other marketing mediums can claim to do so comprehensibly or costeffectively. Digital publishing trend has been quite successful in improving customer retention rates. These publications focus less on consumer market, but rather serve niche audiences or specific demographic customers. These publications are adapting to changing customer preference and their buying patterns.

References

Gupta, Sunil and Donald R. Lehmann (2003), Customers as Assets, Journal of Interactive Marketing, 17 (1), 9-24. Philip Kotler et al. (1996), Market segmentation, Principles of marketing. Pp. 14-15, 25-27. Philip Kotler and Sidney J. Levy, "Broadening the Concept of Marketing", Journal of Marketing, Vol. 33 (January 1969), pp. 21-23