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May 19, 2015
Customer Lifetime Value and Its Marketing Impact
 
In business, the best customer is the one that keeps coming back — the recurring customer — which makes sense. What makes the adage even better is that the best customer is the one that keeps coming back and spends more when doing so.

There's the jackpot.

There's a term for that — a term (and equation, if interested) for determining the present value of a customer in comparison to cash flows.

It is called the Customer Lifetime Value model (CLV or CLTV). It is a marketing and economic term that helps quantify the customer-brand relationship to see if the effort involved in keeping certain customers is worth it.

It is interesting to see that business shares this fact with dating. If the relationship doesn't hold any value, it is not worth holding on to. The best relationships are the ones that grow more valuable as time goes on.

How romantic...and profitable.

We have always positioned customer service as a key component of marketing and public relations, and it is nice to see that CLV can help marketers go the extra mile. Is pouring resources into customer service a good thing? Absolutely. But how much more efficient can a brand be when it can use the CLV model to direct which resources should go to which customers? A great tool indeed.

Singer from Clickz wrote about this concept and how marketers should focus their retention strategy on it. Just a few months before Singer's article, HubSpot provided an infographic and summary about how brands and marketers are actually looking into the CLV model and how they can seamlessly integrate their technology into the new methodology.

All of this is good news. This increased attention means that more marketers and advertisers are beginning to see that more focus, and more dollars, need to be dedicated to customer service. CRM, or customer relationship management, is not simply a term one hears in the classroom. It should be a program and process brands use to identify customers, view relationships, and add value.

Better late than never. Kudos to Clickz and HubSpot for showcasing these topics. Hopefully the rest of the industry follows suit.

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Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.
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