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    What Is Customer Lifetime Value?: Price Discrimination

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    Rajan Mishra
    Customer lifetime value (CLV) is the expected profit a company will earn from a customer over the entire relationship. It is calculated by multiplying the average value of a sale, number of transactions, retention time, and profit margin. CLV must account for customer acquisition costs, marketing expenses, operating costs, and product costs. Brand loyalty, customer perception, and retention impact CLV. Companies optimize CLV through onboarding, communication, loyalty programs, retargeting, and customer engagement and retention.

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    What Is Customer Lifetime Value?: Price Discrimination

    Uploaded by

    Rajan Mishra
    71 views4 pages
    Customer lifetime value (CLV) is the expected profit a company will earn from a customer over the entire relationship. It is calculated by multiplying the average value of a sale, number of transactions, retention time, and profit margin. CLV must account for customer acquisition costs, marketing expenses, operating costs, and product costs. Brand loyalty, customer perception, and retention impact CLV. Companies optimize CLV through onboarding, communication, loyalty programs, retargeting, and customer engagement and retention.

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    Customer lifetime value (CLV) is the expected profit a company will earn from a customer over the entire relationship. It is calculated by multiplying the average value of a sale, number of transactions, retention time, and profit margin. CLV must account for customer acquisition costs, marketing expenses, operating costs, and product costs. Brand loyalty, customer perception, and retention impact CLV. Companies optimize CLV through onboarding, communication, loyalty programs, retargeting, and customer engagement and retention.

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    71 views4 pages

    What Is Customer Lifetime Value?: Price Discrimination

    Uploaded by

    Rajan Mishra
    Customer lifetime value (CLV) is the expected profit a company will earn from a customer over the entire relationship. It is calculated by multiplying the average value of a sale, number of transactions, retention time, and profit margin. CLV must account for customer acquisition costs, marketing expenses, operating costs, and product costs. Brand loyalty, customer perception, and retention impact CLV. Companies optimize CLV through onboarding, communication, loyalty programs, retargeting, and customer engagement and retention.

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    of 4

    What is Customer Lifetime Value?

    Customer lifetime value (CLV), sometimes referred to as lifetime value (LTV), is the profit margin a
    company expects to earn over the entirety of their business relationship with the average customer.

    CLV must also include customer acquisition costs (CAC), ongoing sales and marketing expenses,
    operating expenses, and, of course, the cost required to manufacture the product and services

    Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time
    Period × Profit Margin

    One more important question is: How customers perceive brand. Switching cost should be low.

    Churn rate= (no of customers at the beginning – no of customers at the end)/no of customers at the
    beginning

    #How loyal customer is. Or brand agnostic: No sense of dedication to a particular brand

    Brand loyalist: WoM

    Scalable sales and marketing strategy: to optimize the cost

    Tips to increase CLV

    1. Optimize onboarding: First experience


    2. Effective communication: Welcome, Feedback
    3. Loyalty program
    4. Retargeting: Reminder advertising, or increase brand recognition
    5. Impress, engage and retain

    Price Discrimination
    Price discrimination is categorized into three types
    First degree price discrimination - charging whatever the market will bear,

    Second degree price discrimination - quantity discounts or versioning


    Third degree price discrimination - separate markets and customer groups. segment its customers
    into two or more separate markets, each market defined by unique demand characteristics
    P1Q1 + P2Q2 > P*Q* (Q* = Q1 + Q2)

    Ansoff Matrix

    Existing Market New Market


    Existing Market Penetration Market development
    Product
    New Product Development Diversification
    Product

    BCG
    BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic
    position of the business brand portfolio and its potential.
    There are four quadrants into which firms’ brands are classified:

    Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing
    market. In general, they are not worth investing in because they generate low or negative cash
    returns. But this is not always the truth. Some dogs may be profitable for long period of time, they
    may provide synergies for other brands or SBUs or simple act as a defence to counter competitors
    moves. Therefore, it is always important to perform deeper analysis of each brand or SBU to make
    sure they are not worth investing in or have to be divested.

    Strategic choices: Retrenchment, divestiture, liquidation

    Cash cows. Cash cows are the most profitable brands and should be “milked” to provide as much
    cash as possible. The cash gained from “cows” should be invested into stars to support their further
    growth. According to growth-share matrix, corporates should not invest into cash cows to induce
    growth but only to support them so they can maintain their current market share. Again, this is not
    always the truth. Cash cows are usually large corporations or SBUs that are capable of innovating
    new products or processes, which may become new stars. If there would be no support for cash
    cows, they would not be capable of such innovations.

    Strategic choices: Product development, diversification

    Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash
    generators and cash users. They are the primary units in which the company should invest its
    money, because stars are expected to become cash cows and generate positive cash flows. Yet, not
    all stars become cash flows. This is especially true in rapidly changing industries, where new
    innovative products can soon be outcompeted by new technological advancements, so a star instead
    of becoming a cash cow, becomes a dog.

    Strategic choices: Vertical integration (Forward & Backward), horizontal integration, market
    penetration, market development, product development

    Question marks. Question marks are the brands that require much closer consideration. They hold
    low market share in fast growing markets consuming large amount of cash and incurring losses. It
    has potential to gain market share and become a star, which would later become cash cow.
    Question marks do not always succeed and even after large amount of investments they struggle to
    gain market share and eventually become dogs. Therefore, they require very close consideration to
    decide if they are worth investing in or not.

    Strategic choices: Market penetration, market development, product development, divestiture

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