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Page 3 of 7
Survey and Research Data
Customer Lifetime Value analysis reveals unexpected results
A large U.S. catalogue retailer carried out an empirical study concerning Customer Lifetime Value (CLV). The three year study examined new customers joining the company by tracking their behaviour/purchases on a daily basis. The following summarises the results:
- No strong association between customer lifetimes and profits was revealed,
- Profitability came from both the short and long term customers,
- Long-life customers were not less costly to serve, and
- Long-life customers did not pay higher prices.
A representation of the data gathered is outlined below:
A = Customer numbers;
B = Lifetime profit per customer ($US); and
C = Average item price ($US).
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Relationship
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A
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B
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C
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Long Lifetime/ Low Revenue:
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889
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$ 50.85
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$ 47.74
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Long Lifetime/ High Revenue:
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1322
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$ 289.83
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$ 58.43
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Short lifetime/ Low Revenue:
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1208
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$ 50.49
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$ 47.97
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Short lifetime/ High Revenue:
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783
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$ 257.96
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$ 63.54
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By using this customer data significant savings were able to be made by mailing catalogues to only the high revenue segments. (Reinartz & Kumar, 2000)
Customer Relationship Management aims to increase customer lifetime value
A 2001 survey by the U.S. Data Warehousing Institute, (TDWI) which involved 1,670 respondents found that the CRM project goals which were ranked as "important" or "very important," were as follows:
- Achieving improved customer service and satisfaction, and retaining customers (90%);
- Increased customer lifetime value (84%);
- Acquisition of new customers (83%);
- Identification of profitable customers for unique treatment (78%);
Some 45% of the companies involved reported collecting less than 100,000 customer records and 53% planned to collect between 100,000 and 50 million records in the next year. (Lawson et al, 2003)
Customer Retention Programme - more resources devoted to customer acquisition that to retention
A 2002 poll of US marketing executives emphasised using customer retention as a long-term, profitable business strategy. Based on a poll of 10,000 U.S. senior-level marketing executives the study revealed that 6 in 10 companies had devoted resources to customer acquisition and not retention. Customer databases were reported as being segmented as follows:
- 58% by demographics, psychographics or geography;
- 30% used the information as a basis for purchasing lists of prospective customers; and
- 42% as a foundation for creating predictive models. (Ruech, 2002)
Customer Loyalty Programme Cards create a relationship between stores and customers
A 2002 survey of 840 managers from the UK food and grocery industry concerning the use of loyalty cards revealed that:
- 85% believed loyalty cards helped to create a relationship between stores and their customers;
- Loyalty cards were believed to lead to uplifts in sales without the need for price reductions. This was achieved through attracting impulse buyers to make purchases involving extra loyalty card points;
- The cards were also considered a tool for giving retailers the chance to identify their customers` habits, i.e. how often they shopped, what they purchased, and when;
- Cards also helped to monitor the effect of special offers by showing how likely customers were to buy certain products after a trial purchase, or whether it was a product that was usually purchased. (Dowding, 2002)
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