Unit 3 Customer Value Management Level 5

Answer :


Customer value management is a concept that helps in keeping record of all information related to value that is persist by consumers whom are regularly and sometime visit corporation to make purchases. This is a model that is helpful in studying profitability that is linked with all customers of company separately, overall. In this portion, monetary values which are associated with clients is to be calculated (Jung Choo and et. al., 2012). Very most important reason and method of increasing values of customers are serving them extraordinary quality goods and services. Current report pays attention on Homebase company which is a broadcasting provider corporation and wants to make some improvements in business activities so that profit could go on hike of at least 20%. To hit this goal, firm is now focusing its weak service which is SMS. This service of organisation is in weaker position and has to get improve, in order to maintain and attain all growth goals.

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Task 1

P1 Components that enable determination & calculation of customer's lifetime value

Homebase company is using a current trend which is helpful in predicting value that a business firm drives from him or his clients and name of that tool is customer lifetime value. This term is defined as overall value from starting to end means till customer leaves purchasing from corporation. Nobody has idea that how long and how far a relationship will go with company of a consumer. This type of estimation needs calculation of customer lifetime value. This term is stated as a periodic value that is possessed by customer while becoming customer of Homebase company. This situation is comprehended as one example and this e.g. is, if a customer is linked with association from past 18 months and are making regular purchasing on short term basic then value of this period is £x.

There are many factors that affect determinants of customer lifetime value and details of these aspects are stated as beneath:

Present Value:- This is elaborated as a definite term which is a rate of repetitive purchases from a single business firm. This is a discounted rate of cash flows which is generated through present customer base. Main tool that is to be use in calculation of CLV is time value of money as entire customer lifetime value relies upon time duration that is an entire life of bond of customer and association.

Customer Loyalty:- Customer value management is a terminology that depends upon overall customer loyalty. More loyal a person is than CLV is higher and on the other hand less loyal customer possess lesser value for corporation. For instance, a client is loyal and satisfied with offerings of company then customer lifetime value is high and apart from this, if other customer does not found satisfaction with services of Homebase company then this type of customer could not be a regular or loyal clients for association. To enhance CLV, company can provide better quality services to specially those consumers whom are not satisfy with company's services.

Mathematical formula:- There are some professional experts whom are able in calculating customer lifetime value by applying mathematical formula. Main advantages of this method is that it provides a certain result that is helpful in making effectual decisions for corporation. There are multiple factors which is to be comprised in mathematical format and these are clients, total revenue, period of linking of company and customer etc. For example, it could be calculated as Total revenue ÷ Number of months since customer joined. Main section of this formula is average of revenues generated by consumer. Average of revenues are quite accurate number and organisation can consider it in efficient decision making. There are some different formulas are present in order to calculate customer lifetime value, like:

  • CLV = ((T x AOV)AGM)ALT

Here; T = Average Monthly transactions

AOV = Average Order Value

ALT = Average customer Lifespan (in Months)

  • in Detail:

Here; R = Monthly Retention Rate

D = monthly Discount Rate

Cohort Analysis:- This is a study of a group of people that shares same type of character attributes which is a base for group formation. In context of this, cluster is that whom are comprised in this group will be analysed at the same time in respect to get the value of entire lifetime that a consumer has with enterprise. Main fruitfulness of this terminology is that it does not consume heavy amount of time and produces more accurate results in minimal efforts. This method calculates more that one variant at the same time.

Individualized CLV:- This has its more importance when company wants to pay attention on single customers because this method gives more accurate and correct result that is helpful in decision making. This formula depends upon attitude and behaviour of customer that he/she brings with his/her herewith their arrival. Main basis point of this method is present and past database of Homebase company. This data also provides aid in developing presentations.

P2 Benefits of Customer Lifetime Value

In modern era, there are many firms whom are started paying attention on calculation of customer lifetime value but there is a debate is present on this value. After analysing estimation of this value and if company gets positive results then management of corporation feels usefulness of this concept of customer value management. After conducting this event, association starts using this tool in accomplishment of business operational activities. Conceptualisation of customer lifetime value affects growth and profit generation of firm in positive manner. This action improvises goodwill of venture in marketplace and provides aid in making company as a brand. Those corporations which want to stand apart from range of competition in same industry are use this tool because this is a novel method in context of making business house popular. By taking aid of concept of customer value management, firm can improvise their productivity. There are some benefits which are associated with methodology is explained as under:

Effective Customer Segmentation:- CLV helps operational activities of business by recognising segments of customers along with profile because after getting appropriate information about clients needs and wants then line manager can produce accurate number of products and services by using appropriate tools and methods in production function. This technique sketches an image of consumers about their potentiality whether they are potential or not.

Price Setting:- Customer's lifetime value is helpful in deciding a prominent price of services that are provided by Homebase company to their clients in market after analysing taste and preferences of customers. This type of activity aids in attaining all targets in limited time duration in addition with getting competitive advantages.

Better Forecasting:- This technique is helpful in making identification of most potential consumers in marketplace by calculating their estimated lifetime with association after estimating future demands of purchasers and then this action provide aid in personnel marketing. By conducting this action, company can develop a right plan for execution of business operations. Homebase company wants to their profit with 20% by making some needed improvements in SMS service. Customer lifetime value is helpful in identifying actual status of clients that whom are using this SMS service with how much interest and on the other hand if people are not using this then what is the reason behind this. By applying this tool, corporation can grab market opportunities by finalise requirements of association.

Re-invent Royalty of Management:- Customer lifetime works as indicator need of improvements in business activities in order to produce extraordinary quality services which are responsible for attracting more consumers and upon this action, loyalty of customers depends. This section enlightens those arena which are showing need of improvisations like in context of Homebase, area of improvement is SMS services which is a weaker section of corporations and association wants increase in sales by 20% of SMS.

Retention/Win Back of Customers:- Customer value management is a concept that is helpful for Homebase company by deciding current and future potential of SMS services like growth in further time and current using of company's offering. By recognising need and wants of customers, corporation can make those services which are helpful in winning heart and attention of consumers on regular basis. This action is helpful in addressing actual need and desire of consumer.

Homebase company utilises customer lifetime value in order to predict future opportunities and this type of action is helpful in estimating how long a bond between company and client will go in industry. Customer lifetime value is a valuable tool as it provides assistance in gathering accurate data which is useful in enhancing functionality of business operations for retaining and fascinating clients for longer period of time (Beckers Risselada, and Verhoef, 2014).

P3 Factors that affect customer lifetime value

Customer lifetime value is a concept that was developed to identify lengths of relationship between customer and association. This is a fruitful technique in context of marketing activities as it provides aid to marketing manager in analysing all customer base in order to find out loyal clients of association. This type of behaviour of taking aid of different tools and techniques of marketing behaviour is useful in taking appropriate decisions which improvises quality of services. Customer lifetime value is an effective tool and organisation uses this to find out comprehend level of loyalty of consumers and this method also aidful in identifying how value of customers will vary as per time passes. By taking aid of this methodology, corporation can found the loyalty of consumers along with their contribution in profit generation of firm and up-to what extent (O'cass and Ngo, 2012).

Factors affecting Customer Lifetime Value are described below:

What type of product you sell: Consumers maintain strong and long relationship with brand as these companies consist adequate brand equity. Main reason behind stronger bond of consumers with brands are this corporation is having those products and services which are able in meeting consumer demands with highest satisfactory level. If association fails in delivering good quality products and services which are not able in satisfying client's needs then this action would be converted into brand switching and this is a market opportunity. For instance, Product life cycle of telecommunication services are limited to extent in case of Homebase company.

Services and Promise Level:- This section deals with how corporation's products and services are living their promises. For example: when a customer purchases any SMS service of Homebase company and then after client feels that company is struggling with network issues and due to this reason are providing poor quality service which is responsible for weakness of SMS service of Homebase company (Beneke and et. al., 2013).

Market Stability:- Market conditions are rapidly changing and in this variable marketplace association has to identify present needs and wants of buyers. Rapid and fast changes in taste of clients enable a corporation in making improvements in business operations in order to provide high quality services to consumers in telecommunication industry. This situation is more understood by an example which is; British Telecommunication is having largest pool of customers and Vodafone is a competitor of BT company in market of United Kingdom. Reason behind high rivalry between both corporations are that Vodafone is providing comparatively low data plans which makes many people able in using this is an enough reason for company switching. In order to reduce range of competition BT company has to revisit their data plans and need to make some relevant changes in it (Servaes and Tamayo, 2013). This situation shows that how loyal customer changes their company in order to get some additional benefits. This situation is helpful for other company as this is a market opportunity.

Company's Objectives:- Those associations whom are financially strong and have good command in strategies formulation than this kind of ventures have confidence in their customer loyalty along with their lives with venture. Firms which have adequate financial resources then they can modify their products and services according to change of client's needs and wants. For example; in earlier time operating system was mobile phones were low and because of this reason company was not able in sending delivery reports of messages and nowadays operating systems are becoming faster and this actions is able in fastest delivery of messages and this activity makes SMS service more relevant and prominent (Ryu, Lee and Gon Kim, 2012).

Above stated factors are those elements which are having their impact on long term relationship of company and its client. Customers are considered as king of market and consumers are main operators of market activities and conditions. It is required from every sort of association whether big or small that all above factors should be analysed in critical manner so that negative and positive result could be examined very efficiently. This type of behaviour is helpful in winning back and fascinating new clients towards Homebase company in market.

Task 2

P4 Types of Market Segmentation Strategies applied to customer base

Market segmentation is defined as distribution of marketplace according to some basis like age, gender, income level, user of mobile, techno-friendly etc. This action is done for decision making which is necessary in order to find out number of potential buyers and users of mobile phones. Segmentation is done for finalising those clients whom firm can address for their services. Main cause of market distribution is to recognise those persons whom could be converted into target customers. By taking help of this action association can gain larger market share along with greater profit generation (Leroi-Werelds and et. al., 2014).

Segmentation of market is sentenced as partitioning of market into sections and sub-sections of market and this thing relies upon those human beings whom are possessing same kind of skills and aptitudes. Now this is a responsibility of marketing manager that he/she should recognise those customers who use SMS services and others. This type of market partitioning is aidful in making right decision upon potential buyers. Main objective of this function is to getting information about sales would be increased or not. There are many tactics those are aidful in utilising to divide market or population. These points are explained below:

Demographic: This is a very much common and easiest pattern to make portions of market. In order to accomplish all tasks in most appropriate manner each and every kind of corporation does this whether small association or big. Population is segmenting on the basis of some personality traits which are common or quite similar in group. Main basis of partitioning is age. Gender. Religion, cast, marital status, technology user etc. With assistance of this function company can provide information to their line workers that how much manpower has to produce with which extent of quality (Keyte and Locher, 2016). By taking help of market partitioning, Homebase company is making decisions on potential buyer whom are capable in making company's weaker services into strong one because association is wanting some increment in SMS services by 20% and market segmentation is more prominent technique. If number of SMS users are more them manager of corporation can thing to develop this service. On the other hand, if number of potential buyers are less, than development of service is losable decision for organisation.

Geographic:- When market segmentation is divided according to geographical area then it is called as geographic partitioning of market and this sectioning could be done on the basis of particular region. This type of sectioning could be understood with one instance. For example, a region is finalise by company which is having potential buyers whom could be transform into actual purchasers but this section of market always show network issues and due to this reason, association can not make nay judgement upon finalising geographical region. Telecommunication industry always gets impacted by geographical area. As solution, before developing service, it is required from association that they should sought out problem of network issues so that SMS services could become more prominent (Martelo, Barroso and Cepeda, 2013).

Psycho-graphic: In this section, those points have to be comprised whom are sharing same type of personality traits and attributes like hobbies, type of nature, interest etc. This type of market sectioning depends upon choice of brands, fashion, attractiveness of product instead of quality etc. In this segment, people are comprised on the basis of their thought process which is not conservative and individuals are working for maintaining their luxurious life. This portion includes that social status, sort of personality, zest of consumers, attitudes and beliefs & values.

Behavioural: This is a fresh concept in the sector of market segmentation. Current time is age of modernisation and anything could be done by taking help of technologies and digital equipments. This type of market segmentation could be done on the basis of reports, surveys or trends. In this point, manager can also take sensitivity of price, loyalty of brands and benefits into considerations for further division. People whom are using same level of techniques are combined in same group and company can find rate of technology users on the basis of this function.

Combination Strategy: This is a combination of all above methods and generally organisation does, this type of market segmentation in order to find actual numbers of buyers whom have adequate zeal to purchase services of Homebase company. By taking help of this section association can increase their sales volume by at least 16-18% and other thing depends upon quality of service without any other networking issues (Stark, 2015).

P5 B2B and B2C models of decision making and opportunities value creation can be applied

There are two type of business decisions which provides direction to operational activities of organisation that are named as business to business and other is business to consumer. Judgement development relies upon these two kind of functions. Homebase company is seeking for appropriate decision making system which should be helpful in making improvements in effectiveness of business functions. In this section, there are three type of decisional models are explained which Homebase could apply in their business to business and business to consumers. These models are described below:

Decision Making Models



Classical/ Rational Model

This is a traditional approach which is adopted by corporation is to take better and efficient decisions.

Business to consumer is a traditional type of business which utilises rationale model for developing an effective decision.

This segment is advantageous for small scale firms which is having clear aims and objectives.

This is a novel concept of conducting business activities that are related to many functions of business. This section does not contains models of judgement developing.

In this case, issues and problems are very complicated and hard.

This is a difficult scale business activities and also does not have proper objectives for corporations.

Bounded Rationality or Administrative Model

In this method, judgement development comprises attainment of targets.

In decision making, decisions makes should consider all available alternatives and it is required for him to present all these aspects.

B2C segment is ideally applicable for small and moderate size of firms and in this case number of alternatives are also minimum. In respect to this, managerial personnel need to examine all alternative factors in most appropriate manner.

In this segment, there is an participation of top level management in order to formulate better decision making related to achieving goals and aims in a systematic manner.

There many alterations available but these are difficult to get examine by manager of corporation.

Retrospective Decision-making Model

Under this section, organisation tries to convince customers to buy items and services of corporation which firm is providing at feasible rate.

Businessman does not need to visit any place in order to sale products and services and in case of Homebase, employees of this venture not need to go anywhere as consumer will come themselves for making purchases.


Task 3

P6 Different techniques and methods can apply to increase customer relationship and loyalty

There are multiple tools and technologies which are used by association in order to make increments in customer base and at the similar time association can also improvise their level of profit margins. In respect to Homebase, company is offering SMS services which has been obsolete in today's internet world because people use other apps for sending messages that is to be operated by internet. Due to this cause, company is having less competition in market because other firms are not interested in serving short message services to their clients. It is required for management of business firm that it should apply some relevant tools and techniques that could enhance their sale of SMS services in industry (Aarikka-Stenroos and Jaakkola, 2012).

Apart from this, manager of the company use appropriate tools and techniques which may leads in improving customers relationship. This will increase strong customers base within the organization. In addition of this, customers are the important term as well as asset for every business organization in which they but company products and services which directly contribute in increasing overall sales at market place. In this context, there are some effective methodologies to enhance customers services are as follows:

E-mails: It is one of the important element for every business organization to manage better customers relationship which may leads in increasing the chances of attaining better growth level at market place. By using this, company establishing strong relation with their customers. In this company send and receive emails from their clients in order to achieve their views and opinion. It can be electronic mail in which customers deliver their message and information. Basically it is quick process in which if customers have any issues and queries towards the company products then they easily send message. This process take short time of period which helps in accomplishing better relationship. In case if company revert the customers then they feel that they are important for the company which may leads in enhancing their satisfaction level. Thus, this will aid in creating customers base and at the same time also capture larger market share.

SMS: In previous years, this service was used to do indirect communication where a human being used to send text messages to others in order to convey thoughts or to share feelings with each other. This can be stated as much similar to e-mailing. It differs from e-mail as it do not requires internet. Along with this, it has been examined that firm's employees can communicate with consumers and with employers as well in order to convey their thoughts. Feedbacks can be given by customers by using this tool.

Telephone: It is an essential and two party communication in which dual people can attain at limited period of time. Through these both persons can solve conflicts easily along with that take immediate solution for another person. Generally, it is having a broad network which define fast action and solve problems in a very short period time. By this organisation easily make good relations with their consumers.

Internet: According to present scenario, various numbers of peoples are using social websites in a entire world as it is a network of worldwide. Generally this kind of strategies is effective for enterprise to introduce better relations with various number of persons. By this firms they can easily enhance their services by online websites to give their appropriate information to huge number of buyers in an proper manner. It assist in improving the level of performance at the particular time as well as raised consumers base of the organisation at a place of market.

Thus, all these all these methodologies used by Homebase for creating customer base by effectively communicate with them. With the help of this, company easily attain competitive advantage which may leads in capturing marker share from its competitors a market place.

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This report is summarised as managing customer base by calculating consumers lifetime value. CLV could be calculated by applying more mathematical and non-mathematical formula. Main objective of estimating this concept is efficient decision making in order to handle more than one customer at a time. This report also pays attention upon repetitive purchase that clients make with their favourite company and this type of behaviour of individual persons are aidful in making adequate judgements in order to make some increments in overall sales volume in context of venture.

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  • Aarikka-Stenroos, L. and Jaakkola, E., 2012. Value co-creation in knowledge intensive business services: A dyadic perspective on the joint problem solving process.Industrial marketing management. 41(1). pp.15-26.
  • Beckers, S. F., Risselada, H. and Verhoef, P. C., 2014. Customer engagement: A new frontier in customer value management.Handbook of service marketing research. 2(6). pp.97-120.
  • Beneke, J. and et. al., 2013. The influence of perceived product quality, relative price and risk on customer value and willingness to buy: a study of private label merchandise.Journal of Product & Brand Management. 22(3), pp.218-228.
  • Doligalski, T., 2014.Internet-based Customer Value Management: Developing Customer Relationships Online. Springer.
  • Goetsch, D. L. and Davis, S. B., 2014.Quality management for organizational excellence. Upper Saddle River, NJ: pearson.
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