Types of Relationship marketing.
Discuss the marketing metrics used to measure customer
lifetime value (CLV).
It aims to build mutually satisfying long-term
relationships with key constituents in order to earn and retain their business.
Four key constituents for relationship marketing
are:
●
Customers
●
Employees
●
Marketing partners (channels, suppliers,
distributors, dealers, agencies), and
●
Members of the financial community (shareholders,
investors, analysts).
Marketers must create prosperity among all these
constituents to create a network for effective functioning.
The operating principle is simple: build
an effective network of relationships with key stakeholders, and profits will
follow.
TYPES OF RELATIONSHIP MARKETING
●
Basic marketing:
This is the first step in marketing. It involves acquiring a
customer and successfully guiding them through a sale. In simple words, at this
level the seller directly sells the product to the customer and does not build any
relationships with them. It a direct sale.
●
Reactive marketing:
The second step is when a company can receive feedback from a customer after a
sale i.e. they encourage them to ask any questions or address any problems
related to the product/service. Also they ask for their comments.
●
Accountable marketing:
At this stage, the businesses keep themselves in touch with the customers to
check whether the product/service is meeting their expectations or not.
Business reaches out to a customer for suggestions to improve their experience
with the business.
●
Proactive marketing:
This is where businesses actively work to improve their products
and services, to provide the best possible experience for their customers.
Basically, the businesses keep themselves in touch with the customers from
time-to-time to find out whether the customers are satisfied or not and if they
are not satisfied they initiate the necessary changes and if satisfied they
will ask for suggestions and advice.
●
Partnership marketing:
At this level, the company
works regularly with the customers to find out methods for delivery of
products. At this level, the company takes the customers as partners to improve performance, experience and
satisfaction.
Example of relationship
marketing of Dell
Dell computers created a special online
store for high volume corporate customers. By tailoring the ordering process to
the specific customer's needs, Dell was able to expedite many of the hassles
corporate technology buyers face. Providing a higher level of service leads to
increased loyalty.
CONCLUSION:
No matter which level you focus on, good marketing puts its
customers at the center of all campaigns and strategies. A business should
start with basic marketing to build a customer base, then work through the
remaining steps to get to know their customers and provide the best product,
service, and experience possible. This will ultimately build loyalty.
CUSTOMER LIFETIME VALUE
Customer lifetime value
is concerned with maximizing long-term customer profitability.
● Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases.
● The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of that customer, applying the appropriate discount rate (say, between 10 and 20 percent, depending on cost of capital and risk attitudes).
Lifetime value calculations for a product or service can add up to tens of
thousands of dollars for companies.
IMPORTANCE OF CLV
CLV calculations provide a formal quantitative framework for
planning customer investment and help marketers adopt a long-term perspective.
CLV concepts also take into account the short-term, brand-building marketing
activities that help increase customer loyalty.
CALCULATION OF CLV
Calculate average purchase value: Calculate this number by dividing your company's total
revenue in a time period (usually one year) by the number of purchases over the
course of that same time period.
·
Calculate
average purchase frequency rate: Calculate
this number by dividing the number of purchases by the number of unique
customers who made purchases during that time period.
·
Calculate
customer value: Calculate this
number by multiplying the average purchase value by the average purchase frequency
rate.
·
Calculate
average customer lifespan: Calculate
this number by averaging the number of years a customer continues purchasing
from your company.
·
Calculate
CLV: multiply customer value
by the average customer lifespan. This will give you the revenue you can
reasonably expect an average customer to generate for your company over the
course of their relationship with you.
Let’s take Starbucks as an example for determining CLV. By following the steps listed above, we can use this information to calculate the average lifetime value of a Starbucks customer.
1. CALCULATE THE AVERAGE PURCHASE VALUE.
First, we need to measure their average purchase value. According to a report
the average Starbucks customer spends about $5.90 each visit. We can calculate
this by averaging the money spent by a customer in each visit during the week.
For example, if I went to Starbucks three times, and spent nine dollars total,
my average purchase value would be three dollars.
Once we calculate the
average purchase value for one customer, we can repeat the process for the
other five. After that, add each average together, then divide that value by
the number of customers surveyed (five) to get the average purchase value.
2. CALCULATE THE AVERAGE PURCHASE FREQUENCY RATE.
The next step to calculating CLV is to measure the average purchase frequency rate. In the case of Starbucks, we need to know how many visits the average customer makes to one of their locations within a week. The average observed across the five customers in the report was found to be 4.2 visits. This makes our average purchase frequency rate 4.2.
3. CALCULATE THE AVERAGE CUSTOMER'S VALUE.
Now that we know what the average customer spends and how many times they visit in a week, we can determine their customer value. To do this, we have to look at all five customers individually, and then multiply their average purchase value by their average purchase frequency rate. This lets us know how much revenue the customer is worth to Starbucks within the course of a week. Once we repeat this calculation for all five customers, we average their values together to get the average customer's value of $24.30.
4. CALCULATE THE AVERAGE CUSTOMER'S LIFETIME SPAN.
While it's not specifically stated how reports measured Starbucks' average customer lifetime span, it does list this value as 20 years. If we were to calculate Starbucks' average customer lifespan we would have to look at the number of years that each customer frequented Starbucks. Then we could average the values together to get 20 years. If you don't have 20 years to wait and verify that, one way to estimate customer lifespan is to divide 1 by your churn rate percentage.
5. CALCULATE YOUR CUSTOMER'S LIFETIME VALUE.
Once we have determined the average customer value as well as the average customer lifespan, we can use this data to calculate CLV. In this case, we first need to multiply the average customer value by 52. Since we were measuring customers on their weekly habits, we need to multiply their customer value by 52 to reflect an annual average. After that, multiply this number by the customer lifespan value (20) to get CLV. For Starbucks customers, that value turns out to be $25,272 (52 x 24.30 x 20= 25,272).
CONCLUSION
Knowing
the CLV helps businesses develop strategies to acquire new customers and retain
existing ones while maintaining profit margins.
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