This unit is based on the case of Home base they have used SMS communication for uplifting their sales and develop customer value for the product and service offered.
- Determine the concept of CLV, ways of calculating customer Lifetime value and factors that influence CLV at work place.
- Evaluation of various segments in customer base and the opportunity for customer value creation
- Determine various methods and techniques for maximizing customer lifetime value.
Customer value management refers as an approach through which managers of a firm can manages business market in a proper way. This concept includes two basic objectives i.e. deliver effective value of products to customers and get high return on investment. For achievement of this, marketing department of a firm uses various strategies and techniques in order to identify demands of customers, situation of marketplace, behaviour of people etc. All these things help in improving sales performance of an association. For determining the importance of CVM in a company, a report has been prepared on a TESCO marketplace (Hollensen, 2015). It is an international firm of UK which operates business in various countries. This firm is dealing in retailing sector which serves products like home based commodities, luxury food items and more. In order to increase large market share, this assignment has made a discussion upon different factors present in business environment which affect customer base and profitability.
P1 Components that enable an corporation to determine & calculate customer's lifetime value
Customer lifetime value refers to a tool which is used in analysing perception of people about products of a company. It forecast the value of consumers i.e. till how many days or time a person engage with an enterprise. Through this method, managers can evaluate sales performance of enterprise and how much they can generate revenues in future. Therefore, management of Tesco, used to measure CVM in order to know how business of this firm goings on in marketplace. It uses various methods in enhancing brand image of association so that number of footsteps of people can be increased at stores. In addition to this, it gives various offers and discounts so that people buy products in bulk and retain with long time through which they can generate high return on investment as well as occupy large (Johnston and Marshall, 2016). In general, CLV determines a periodic value that predicts estimated value of customers’ relationship with firm’s product in 12 months which is shown as £x. Mathematical formula for calculating CLV is:-
Calculation of CLV= (Average Order Value) x (No. of Repeat Sales) x (Average of Retention Time)
Some major terms included in CLV which needs to be calculated are described as below:
Present Value: It reflects customers’ perception when they used products of an enterprise or how many people comes on daily basis in outlets of them (Kerzner and Kerzner, 2017). So, by calculating present value of brand at marketplace, managers can measure cash flow as generated by customers i.e. value of money in terms of time or till how many days customers will be retain with services.
Customer Loyalty: An enterprise always wants to gain retention of loyal customers who avail products or services for long period of time. It would them in gaining high return on investment.
Mathematical Formula: Using mathematical formula for calculating monetary price of CLV, managers of Tesco can depicts accurate value. To measure this accurately, they needs to consider on some specific components like customers’ perception, duration of time i.e. how many days a person retain with company’s commodities and total revenue generated. In mathematical terminology it can calculated as:
CLV = (Total revenue/Number of months customer taken the services).
P2. Benefits of customer lifetime value to an enterprise
Customer Lifetime Value represents the sales performance of an enterprise as well as brand image of it at marketplace (Kim and et. al., 2015). It derives the real position of a company in terms of customers’ perceptions. Therefore, after measuring value of CLV, managers of a firm can determine need of modifications in production and modes of delivery. In context with Tesco, it manufactures high qualitative products and delivers them on affordable price rates. It has gained ninth position in the world in retain industry due to offering best services. Currently, it has opened various stores in near about 7 countries where more than 17,000 workers are working. This company is famous for its innovative and creative products or services as well as ways through which it convinces people to stay with the same.
By calculating CLV, an association can make modifications in organisational system so that better outcomes can be obtained. In order to understand perception of people, Tesco used to make good connection with them by using SMS and e-mail services. Through these modes of communication, employees of this firm can interact with customers easily and inform them about new offers and discounts (Kotler, 2015). It would help in increasing number of customers at their stores. Some of the major advantages of CLV for all type of organisations are:
- Enhance goodwill of firm in market: By developing and maintaining a good relationship with customers, a company can enhance its image at marketplace in higher order. In addition to this, it also increases reputation of that firm which aid in enhancing goodwill. Therefore, Tesco maintains a good relationship with all its customers on individual basis. It provides several benefits to them in order to keep their interest with services of enterprise.
- Increase profit and ensure growth of company: Tesco has introduced latest technologies in its premises to produce better outcomes as per interest of consumers (Hammer, 2015). It will aid firm in giving innovative products which help in satisfying needs of customers in an efficient manner. Along with this, using fast communication modes of technology, this firm has made good connection with people and timely aware them about new offers and discounts. It would help in gaining interest of consumers through which Tesco gain high return on investment. Therefore, maintaining a good relationship increase profitability and growth of company.
- Price Setting: Customer life time value describes behaviour of consumers and their purchasing power. So, by understanding economic level of people, Tesco has offered its products on different-different range and discounts (Kotler, 2017). In addition to this, it also serves a wide range of commodities which satisfies need of each customer on higher level.
P3. Factors influencing the customer lifetime value
Customer Lifetime Value is affected be various factors of business environment as it consumes much time. Therefore, it creates a great impact on sales performance in negative way which directly affects on profitability of company also. To calculate CLV in an accurate manner, a company needs experts who have sharp skills and knowledge to keep an eye on effectiveness customer relation with companies. The factors which arise in internal and external environment that influence CLV in an organisation like Tesco are:-
- Lack of professionals: Since every industry wants to acquire large number of customers for long time, but to calculate accurate value in such condition seems to be very difficult. Therefore, lack of expert in enterprise creates much impact on CLV. In this regard, Tesco requires to recruit more employees who are expert in calculation (Kumar and Reinartz, 2016). As it requires lot of mathematical and logical terminology to measure value of CLV in an accurate manner.
- Rise in competitors: This is the most important factor that arises in external environment but creates a great impact on CLV of an association. Major rivals of Tesco are Sainsbury, H&M, M&S, ASDA and more, all of use different techniques to attract minds of customers. It affects sales performance of Tesco in large manner.
- Online and offline channels: In order to make effective connection with customers, management of an association needs to latest techniques. They need to consider the usage of online and offline channels along with their benefits and drawbacks. Through evaluating the use of both procedures, managers are required to provide information about products, offers and other services to customers on regular basis. It helps in making connection with customers with long purpose.
- Size of organisation: Generally people have conception that a big branded company has offered good quality of products and services (Davis and et. al., 2018). Therefore, they like to buy commodities of large size business enterprises in bulk. Thus, it can say that size and reputation of a firm also impact on CLV (Lemon and Verhoef, 2016). Since Tesco firm has operated its business on large based organisation, so, it gives benefits to retain many customers with firm. But having large consumer based organisation seems difficult to calculate actual value of CLV.
P4 Type of market segmentation that can be applied to a customer base
Due rapid increase in technologies, taste and preference of customers are changing at higher rate. Therefore, to understand behaviour of each people in a proper way is really a big task. In context with Tesco, this firm has large customer based organisation, so to determine and fulfil need of every customer is seems to be difficult. Therefore, to cope up this issue, managers of this industry use market segment procedure. This method is helpful in understanding desires of every customer. Market segmentation is a procedure by which a company divides market into smaller fragments that possess same characteristics, lifestyles, taste, status as well as similar purchasing power. Through this method, managers can evaluate behaviour of each group and completed it on time (Pearson, 2016). In addition to this, as per requirement of each segment, managers can formulate different strategies in terms of price as well as serves different offers and discounts. Along with this, segmenting customers into similar group aids experts of a firm in measuring accurate value of CLV in a proper and efficient manner. Thus, it improves sales performance, enhances growth and profitability of a company in a desired manner. There are various type of segmentation of market available which can be applied to a customer base are:-
- Segmentation: Under this section, market is segmented on the basis of similar behaviour, general desires and basic needs. So, it would help organisations in completing their needs as per requirement of them. In addition to this, market segmentation also reveals the purchasing power of customers so that products are offered accordingly. This would also help in calculating CLV in an accurate manner.
- Targeting: In this section, Tesco can target many group of different characteristics simultaneously (Rihova and et. al., 2015). In this context, managers determine common desires of them and serve them accordingly.
Positioning: This section of