Case+Study+&+Customer+Lifetime+Value

__Case Study__ __Customer Lifetime Value (CLV)__ CLV = {[(cash flows generated by a customer) – (cost of keeping the customer)] / [1+Discount Rate]} – (Customer Acquisition cost)} > **Articles about "firing" customers** > > [] [|John Chisholm] on Feb 19, 2007 > > > Subtlety: "Instead of firing such customers, for instance, NetFlix has taken a gentler approach. An online DVD rental service, NetFlix offers an unlimited number of DVDs for rental via postal mail for a fixed monthly fee. Customers who quickly send back movies to get more erode the company's profit margin because each DVD sent out and returned costs the company nearly a dollar in postage alone. Rather than raise prices for these users and lose the marketing benefits and administrative savings of its fixed pricing, NetFlix "throttles" them: It slows down order fulfillment for customers who demand the greatest number of DVDs per month. NetFlix does not attempt (or no longer attempts) to hide the practice. According to NetFlix customer service, "In determining priority for shipping and inventory allocation, we give priority to those members who recieve the fewest DVDs through our service." > > > > >  [] When, Why and How to Fire That Customer, October 2007, Business Week > One woman with an Investment Advisory firm cut relations with about a dozen of her 650 clients and saw profits rise 25% as a result. This article gives real numbers and great examples of how to calculate customer profitability in quantitative terms. > >
 * Identify components
 * Customer Segmentation - Identified through easily distinguishable parameters such as type of the product (copiers designed for X number of copies per month), revenue generated for respective customer base etc.
 * Value proposition - While defining the Value Proposition answering the Why? question might be of great value in attracting customers.
 * Target market/Target segment - Market Segment Served.
 * Identify benefits to compete on - Ex: Guarantee, reliability, service, customization.
 * Benefits are always from the customer's point of view. Ex: flexibility, NOT a warranty (a warranty is an attribute of the company or product).
 * Which capabilities, internal to the company, allows delivery of important benefits better than the competition
 * Identify key issues and key solutions
 * Identify the problem - In this Xerox case, as IBM & Kodak market share increased - the competitive advantage of xerox should be based on identifying its areas of strength. Xerox has 32% revenue generated from 5% high end customers - who are leasing. There has been a decline in sales among low volume market, xerox's advantage comes out of excellent service provided to high volume market. Hence, one solution would be to focus on service provided to leasing high volume market for competitive advantage.
 * Connect quantitative data to qualitative data
 * Analysis data to back up the issues
 * Formulation calculates how much customer's value worth in term of monetary.
 * This formulation helps the marketing department to calculate how much they can spend to acquire new customer.
 * If a customer is expensive to have relationship with, the company should give them the incentive to decide whether he/she should stay or leave.
 * The formulation is similar to Net Present Value (NPV) calculations used in Finance 