CLV aka post decisions part 2

Question 1

clv

Answer 1

Long-term (future) financial value of existing customers/ value of satisfaction/loyalty/repeat purchase

Question 2

How can managers calculate CLV?

Answer 2

Churn rate method
 Net profit from a repeat customer over time,
discounted to the present momen

In summary, the churn rate method assesses the potential profit from repeat customers over time, factoring in how long they are likely to stay with the business and adjusting for the present value of future profits.

Question 3

clv formula

Answer 3

m Times l- AC
m times L = revenue
AC= costs

Question 4

m

Answer 4

contribution margin –> how much is left over after accounting for variable costs
based on invoices of John Smith & Bell company annual report
invoices and annual report

Question 5

L

Answer 5

number of Yeats someone is expected to be a customer
look at annual report

Question 6

AC

Answer 6

acquisition cost of the customer
look at annual report
upfront cost to acquire the customer

Question 7

how to calculate m

Answer 7

sales/year- variable cost/year
variable cost/ year= variable cost on bell income statement divided by number of customers

Question 8

how to calculate ac

Answer 8

total marketing expenses from the company income statement divided by number of NEW customers acquired by the company

Question 9

churn rate aka defection rate

Answer 9

% of customers who leave each year
more is churn rate, less should be expected lifetime of a customer

Question 10

how to calculate L aka expected lifetime of a customer

Answer 10

expected value= probability Times outcome
you do it for each year
year 1 is certain and we assume its 1
prob of year 2= RR
prob of uear 3= RR times RR

Question 11

what is RR

Answer 11

retention rate or 1- churn rate
comes from annual report

Question 12

how can managers use clv

Answer 12

1. Clv can be calculated an at individual level, as well as at the segment level
   Sometimes make sense to do it at a group level→ with a lot of people, maybe easier to separate groups lie at the airport they have different stations like one for gold status, oen from platinum , used for convenience
2. Invest in current valuable customers
   If your a valuable customer, firms must do things to keep you
   Retain high clv customers through incentives, long term cintracts , personalized offers
   People at different tiers get different benefits
   Gambling industry identifies who are the high clvs, stay at the same hotel and gambel at the same place bc you will get more benefits

can be calculated at the individual, segment level

Question 13

Incentives

Answer 13

1. High acquisition cost (event sponsorship, bonus points, advertising…)
   Partially offset by initiation fee
2. High variable costs
   Incentives such as free nba tickets, airport loung access
3. But also high contribution (what they can get money from)
   High annual fee
   3% transaction fee
   High interest rate on balances
4. And churn is low (due to)
   Branding, scarcity, social signal

By balancing high acquisition and variable costs with strong contribution margins and low churn rates, businesses can create a sustainable model. The use of attractive incentives, combined with strategic pricing (annual fees, transaction fees, and interest rates), can help maintain profitability while enhancing customer loyalty through personalized offers and engaging experiences

Some of these high acquisition costs are recouped through an initiation or sign-up fee, which helps recover part of the investment spent on attracting customers.
hig variabel;e costs: These incentives are costly, but they are designed to drive continued engagement and customer satisfaction.Once customers are onboarded, the business might incur variable costs

can also give discounts and personalized offers

Question 14

Responding to complaints

Answer 14

Pay special attention to/give unepxece remedies
1. Based on high customer lifetime value
2. Based on high customer influence scores
Number of tiwtter followers
NMaybe there are other things that make someone valuable (high social media followers)
number of youtube videos posted/ views
Ex: air canada refuses to compensate musician after breaking his guitar→ he posted on youtube

Question 15

increase clv by upselling

Answer 15

Try to further increase clv by upselling (ie. increasing “m”)
Industry were churn is high → ex: tinder
Increasing M will attract customers who seem unnattractive

Question 16

upgrade current unprofitable customers

Answer 16

upset
Cancel contracts/ offer higher price to costly customers

Question 17

acquire new valuable customers

Answer 17

Focus on segments with high CLV’
Determine how much to spend on acquisition for desirable CLV
Targeted referal programs
AC→ have a very good idea of the clv of high rolling customers in vegas→ what the acquisition cost i can afford to pay for the right type of person, need to know you belong to high roller demographic

Question 18

summary

Answer 18

• CLV can be calculated at the individual level, as well as at the
  segment level
   Women vs. men, Canada vs. US, Online vs. offline
• Invest in current valuable customers
   Platinum, gold, silver customers
   Retain high CLV customers through incentives, long-term
  contracts, personalized offers, response to complaints….
   Try to further increase CLV by upselling
• Upgrade current unprofitable customers
   Try to further increase CLV by upselling
   Try to reduce churn
• Fire current highly unprofitable customers
   Cancel contracts/offer higher price to costly customers
• Acquire new valuable customers
   Focus on segments with high CLV
   Determine how much to spend on acquisition for desirable CLV