Customers play vital role in growth and success of organisation. Their needs and preferences must be considered by management of business in order to satisfy them and attain long term sustainability of business in market (Verhoef and Lemon, 2015). It is also required by manager to take valuable feedbacks of customers and consider them so that, improvements can be made in goods and services that are offered by company. This assignment is based on Customer Lifetime Value Management by taking an example of Homebase. In this project, it is required by management or business to evaluate lifetime value of customers so that effective working can be promoted in proper manner. In addition to this, benefits of lifetime value should also be determined by management so that appropriate benefits can be gained. B2B and B2C models are also evaluated so that effective decisions can be taken.
P1 Analyse the various components that enable an organisation to calculate customer's lifetime value
Customer's lifetime value is important method which are used by Homebase. It is useful for determining future through which customer's can develop an effective relations with customers. Due to this they are able to maintain long term relation with them. Due to this organisation can able to calculate CLV which help them in determining periodical value as well as services for the users (Goetsch and Davis, 2014). CLV can be identify through some factors. It includes:
Present value: It is the current worth of a future sum of money or cash flow which give specified rate of return. It is also known as discounted value. It can be used for the reference to future value. It is also related with discounted rate which is related to cash flow and can be determined with the help of existing client base. This can also be determined with the aid of time value of money because CLV is related with periodic value which is more necessary for retention of customers.
Customers Loyalty: If consumer are much loyal for an organisation then,this give help in maintain long term retention; through CLV they can take the support. Instead of if customers are not satisfied for their products and services of an organisation , then they are not ready for purchase their products (Chacour and Ulaga, 2015). Therefore it is necessary that loyalty of customers can be maintain by organisation, if there is no loyalty with them then it will give negative effects on their productivity and growth.
Mathematical formula:Many experts are using this formula for calculating the CLV. With the help of this , accurate value can be determine which can be find out with the help of support manager for the judgement making procedure. Formula can be consist of many factors these are customer's number and profits (Chacour and Ulaga, 2015).
Formula:Total profit/ number of months since client joined
With the help of this average revenue can be determined which is developed through purchaser. Some more formula can be utilised these are:
CLV: ((T*AOV) AGM) ALT
here, T: Average monthly transactions
AOV: average order value
ALT: average customer lifetime (in months)
Here, R: Monthly retention rate
D: Monthly discount rate
- Cohort analysis:It is related with behavioural analytics which help in collecting data from a given dataset. This include e-commerce, platform, web application etc. These groups mostly share common characteristics or experiences within proper time span. It is related with analysis of groups which is related with big data. In this study data is broken down into similar groups (Kerzner and Kerzner, 2017). This analysis help in measure user engagement over period of time. This also help in separating growth metrics from engagement metrics.
- Individualized CLV: If organisation want to calculate exact results then this method is widely used by them; because through this each person's behaviour as will as their attitude can be evaluated. For this company are using both kind of data which is related with past and present. Due to this manager are able to calculate an effective presentation foe the organisation.
P2 Benefits of customer lifetime value to the organisation
In this modern world, many organisation are paying very high much amount for paying attention in determination of CLV. When evaluation is done and firm want positive results then they take help of these factors (Stark, 2015).Some organisation is using their marketing mind to retain their customer's and increasing their purchasing levels. Due to internet era, their in increasing need for marketers to be more analytical and financially power in the development of marketing strategies and actions. CLV is a powerful tool and a very important metric. This is also known as “the golden metric”. Due to this reputation, market share and profit of firm can easily be increased which help them into their growth and success. Because of this any affiliation take the benefit from the competitors, which will help in apply CLV into business. Therefore due to this many benefits can be determined which are mention below:
Effective customer segmentation:If the segmentation is made on the basis of customers needs and want they the companies are able to achieve their wants and needs , according to requirement of customers. Foe this firms are using CLV . Due to this they are able to innovate their products so that they can easily provide maximum satisfaction . This will able to maintain better image in front of people in market (Rihova and et. al., 2015).
Price setting:CLV provide help to experts in deciding the value of products as well as services by determining their demands , tastes and preferences. By doing this they are able to compete with their competitors in the market and able to take more benefits from customers.
Better Marketing: CLV able to increase marketing through focus on customers. This able to increase value of products and their features.
Better forecasting:With the help of CLV, an employer of firm are able to find out future purchaser's demand. Due to this they are easily develop strategies and plans to acquire more results. In case of Homebase, they want to increase their sales by 20% and want to achieve it , for this they need to calculate CLV. With the help of CLV they are able to know about their opportunities in relation to requirement of organisation.
Encourage Brand Loyalty:If there is regular contact with their customers they are able to maintain brand loyalty. Due to this companies are trying to give extra benefit to their customers due to which they are attracting towards their brand (Kumar and Reinartz, 2016).
Save Time:If the firm are concentrating on their target market and loyal customers they can easily save their time and money by not wasting effort on those which are worthless.
Re-invent royalty of management:Customer lifetime value is a factor which provide help in improvement of business activities for increasing qualities of goods and services that firms are offering to their current and important customers and upon which CLV depends. This is a value which give help to those areas which require improvement. With this company managers are able to find out the buying behaviours of customers .Due to this managers are able to take effective decisions in order to restructure their SMS services through which they can increase their market share (Leroi-Werelds and et. al., 2014).
Retention/ Win Back of customers: CLV help in determining the present and future requirement of SMS services because with the help of this facility Homebase able to increase their sales by 20% .Due to this customer's are able to fulfil corporation's purpose .With help of this action Homebase can able to maintain better position in marketplace. Due to this firm are able to increase productivity of associations.
P3 Factors that influence customer lifetime value
CLV is important for future forecasting that company manage with its customer's. CLV help marketing managers which help in finding expectations of buyers. It also provide help in determining product development, customer support, supply chain management etc. With help of this managers are able to find how loyal customers are contributing in profit generation (Taheri and et. al., 2017).
There are many factors which give impact on CLV which are described below:
What type of product you sell : If company are selling better goods and services in market this will help in increasing customer's loyalty for longer time. If organisation are not able to fulfil their need they can shift to other company easily.
Service and promise level:It means how companies are able to fulfil customers promises and services. For example if any one want to buy car then companies give them extra services which is totally free. But if they are not able to give extra benefit to them they can easily shift to other one.
Market stability:Market are developing fastly so that it is necessary for company to examine requirements and needs of purchasers. Customer's preferences and taste of people will made according to time , therefore it is important for the firm to change their product according to them (Martinsuo and Killen, 2014). AS a result customers are able to take benefits from the market. For example if any firm are providing services at reasonable rates then it help in capture more individual towards them. Thus are are able to male image in the market for longer time which help in increasing profitability of company.
Company's objective:Every companies decide in advance what they want to achieve in future for better growth. If any firm is financially strong then they are able to make better image in the market. Which help them to provide confidence more in CLV. It has been seeing in the market if any company are able to change their product according to taste of customers then they are able to maintain high satisfaction level in market. It will help them in taking more advantages from their competitors in the marketplace (Schwepker Jr and Ingram, 2016). For example apple launched new series of Iphone but after some times they introduced X series with more features to fulfill requirement of people.
Therefore, above described factors play a vital role in providing influence of customer relations. It has been evaluated that clients are considers as important user for their services.
P4 Types of marketing segmentation strategies
Market segmentation refers to the procedure of dividing consumer market into sub segments on the basis of some shared characteristics. Market is divided into homogeneous groups and usually have 1 or more common aspect among them. It is the most efficient tools used by marketers in order to cater to their target group. This makes easier to them to individualize their campaigns, emphasize on what is essential and group similar customers to target a particular group in cost effective manner. Segmentation depicts that firm will divide its market place according to the preferences and needs of customers so that they are able to administer them facilities effectively. It will assist management in making effective decisions regarding investments (Payne, Frow and Eggert, 2017). The major reason for segmentation is that it will facilitates in attaining demands of each kind of segment so that profits and profitability of firm can be enhanced as well as large market share can be acquired. Homebase divide their market into sub segments as per the preferences and characteristics of people. The company classify their market into 2 categories. One is SMS users in which those people are included who are using this service and other one includes those people who are not using it. There are some types of market segmentation on the basis of which market is divided. These are defined below as follows:
Demographic: Under this, market is divide on the basis of some variables such as marital status, age, gender, income, race, nationality, religion, occupation, family size etc. It is the most common practice of segmentation among the marketers. Segmentation play key role in maintaining long lasting relationship with its customer. For example: Premium income group contributes significantly towards purchasing products of respective company. In long term they become their loyal customers. This type of segmentation is used by every kind of industry and is based on premise that the buying behaviour of customers are highly impacted by their demographics (Christopher, 2016).
Behavioural: Segmentation of market is also done on the basis of behaviour, preference, usage, decision making and choices of customers. Usually, the segments are divide on the basis of their knowledge regarding product and usage of that. It is believed that knowledge related to good and its use influence the buying decision of people. Target audience can be segmented in:
potential users, ex-users, those individuals who know about product as well as those who don't know, first time users etc. Individuals can be labelled as competitor loyal, brand loyal etc. This kind of segmentation is highly used by management of Homebase. As now, firm use digital techniques in order to administer maximum satisfaction to customers. This will assist in improving profits of company. By using this segmentation, firm can easily enhance their services at various areas (Xu, Peak and Prybutok, 2015).
Psycho-graphic: In this, audience is divided on the basis of their lifestyle, attitude and personality. This process of segmentation is works on premise that buying behaviour of customers can be affected by his life style and personality. Lifestyle includes the way in which an individual lives his life. Personality is a mixture of characteristics that form a distinctive character of an individual and involves attitude, traits, habits, temperament etc. Both these variables influence habits and buying decision of person to great extent. So, management of Homebase needs to consider these variables at the time of segment their market.
Geographic: The market is divided on the basis of geography. It is an important type of segmentation for marketers as the people who are belonging to distinct regions may have their different requirements. This basis of segmentation is used by management of Homebase when they divide their target audience according to a particular region (Verhoef and Lemon, 2015). For example, there are some areas where effective network is not available so people can not be able to use the SMS service provided by firm. Therefore, it is required by government to improve such areas so that people are enable to use such service.
Combination segmentation: It is the mixture of all kinds of segmentation strategies which are defined above. Homebase use this kind of segmentation which helps them in improving their sales easily by 20% with improving SMS service.
P5 Evaluate B2C and B2B decision models
Every organisation works in order to provide services either to customer to other business. It is important to deliver quality product or services to each and every buyers which ultimately leads to meet their requirement in an effective and efficient manner (Goetsch and Davis, 2014). The process of decision making is completely depend upon the particular type of organisation so as to frame better decision in terms of accomplishing objectives and goals in a structured and through manner. Thus in order to improve effectiveness of business concern, management needs to execute appropriate strategies and decision making process which enable them to sustain and beat market competition adequately. Different types of decision making models that has mainly been taken into account by Homebase are discussed below:
Decision Making Tool
· For taking appropriate and better decision, management is required to underpin demands and needs of each target customer through the help of rational decision making method. It is a kind of classical approach that ensure company must aware about current issues, objectives, goals prevailing in the company.
· Needs to compute all problems and issues properly so that analysis of business activities can be done within stipulated time frame.
· Management need to set clear target and goals so that they can work accordingly. This is mainly suitable by small firms.
· It is one of the finest and most common way of doing business to business where less involvement of decision making model is there.
· In the context of B2B, issues or problems are less clear that may hamper overall work as they employees are unaware of their roles and responsibilities. In addition to that, it is complex in nature.
· Business targets and objectives are not properly defined and unclear in the given context.
Administrative Method or Bounded Rationality
· This decision making model include the accomplishment of goal.
· According to this theory, it is the prime responsibility of decision maker to properly analyse and understand the alternative course of actions for reaching the objectives and goals.
· Under this model, effective decision are made in respect of framing best possible solution to the given problem.
· Under this decision making model, there is involvement of top management in framing decision for the company so that its objectives can be attained systematically and within its defined time frame.
· There are large number of options or alternatives that are available which makes it little difficult for managers to measure them appropriately.
· With the help of this decision making model, company's can makes their customer much stronger.
P6 Different methods and techniques used to increase customer relationship and loyalty
Different types of tools and techniques has been used by business management in order to maintain better relationship with its target audience and retain them for longer period with the company (Tools of customer relationship management, 2017). One of the main objective of any company is to raise its profits or revenues and this can only be possible when they attract more and more customers towards their product and stimulate them to buy the product respectively. Home-Base is providing effective and better services to each and every customers by satisfying their needs and wants in a structured and thorough manner. In today's era, choices and preferences of customers are changing rapidly which creates an urge for business enterprises to produce and offer such products and services in the market that satisfies their needs effectively. However, there are various factors that exist in the market which enables company to gain opinion or suggestion of target customers that facilitate effective and appropriate working. In addition to that, they need to execute each and every activity related with that in a systematic manner which help them in making their customer base more strong. Thus, in order to beat the competition prevailing in the market, management needs to implement effective strategies related with improving customer loyalty relationship that so that they can contribute more effectively towards generating company's profitability ratio. Along with such programs, it has become much easier for businesses to seize the attention of customer adequately and retain them for longer period.
Different tools and techniques undertake by company in consideration for attaining better results and gain high competitive edge in overseas market (Chacour and Ulaga, 2015). Thus, in order to maintain effective relationship with its target customers, different number of channels or platform mainly taken into account that assist them in making and developing better customer relationship with target customers. Some of the common tool that has been taken in consideration by Home Base are discussed as follows:
E-mails: Customers are known as the king of market. Therefore the primary duty of company's manager to maintain strong relationship with its potential buyers (Kerzner and Kerzner, 2017). Customers play key role in organisational success and growth. This is the most common and widely used channel that through which firm conveys brand message among customers in an appropriate manner. In addition to that, with the help of this channel company's can clearly communicate their about their product and their offering. If a customer gets a mail from the company it makes them valued and important which indirectly leads to increase sales and profit maximisation.
SMS: Another channel selected by Home Base through which they are able to maintain good relationship with its customers is through SMS. Company can deliver a feedback message that signifies whether customer is satisfied the existing features of the product or services. Along with this, whenever they introduce any new offer or thinking to provide discount to customers they can simply inform them through this channel so that each and every customer of Home Base must aware about various offering and loyalty programs (Verhoef and Lemon, 2015).
As per the above mentioned report, it has been concluded that customer value is related to perception value of offering product against competitors offering. It is necessary to manage this value in proper manner. It assists in growth and development of business in various areas which in turn results in high profits and profitability. Firm needs to assess customer lifetime value in proper manner so that management enables to attain targets and objectives of company in an effective and efficient manner. It is required by manager to properly segment their market on the basis of different variables so that it becomes easy for them in making effective decisions regarding sales of products and services.
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