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OFEK (2002)

OFEK (2002)
To companies, what are the benefits of calculating CLV?
The main purpose of calculating CLV is for the development of customers who will be highly committed. These customers will not only make subsequent purchases but they will also help in the promotion and generation of continued revenue channels. These customers will also require less attention meaning minimizing on the maintenance costs. One of the benefits of calculating CLV to the firm is that it allows the firm to track and compare initial acquisition costs to the profit expected with the customers’ relationships with the company. This helps the company in knowing which customers to keep because of loyalty and which ones not to concentrate on. This also helps the company in formulating strategies concerning customers such as how the promotional mix will be revised depending on previous and recent transactions.
Another benefit is to gain knowledge on customer activity. This involves reviewing some historical data that contains the records of activities of the new and the existing customers such as buying patterns. In such a case, the firm utilizes the gained knowledge to forecast customer activity and assign different corresponding levels of communication or promotion. The responsiveness of the customer to certain offerings and the expectation that the customer shall not go away enables a firm calculate the customer profitability and lifetime value. Generally, the calculation of the CLV can be useful in the understanding of the value of the customer and the prompting of the firm to learn more on consumer patterns both individuals and groups. The information acquired helps the firm in the creation of strategies that deal with each individual customer, create a strong and long-term relationship with the customer and eliminate numerous wasteful costs.
It is critical that a firm establishes strong relationship with its customers over time. How do CRM applications help improve customers’ lifetime value? Use an example to support your arguments.
            CRM applications help in the improvement of the customer’s lifetime value in many ways. Since the relationship between the customer and the firm is not static, it is important for the firm to realize and recognize the different stages in the life cycle of a customer. This is to enhance the relationship and the mutual value created between the two. In its application, CRM requires that the company recognize its first time buyers. The first time buyer commonly goes through an experience that assesses the firm’s products and service. At this stage, the risk of defecting to another company is quite high and this is a critical stage in establishing customer trust especially for companies with short purchase cycles.
Another example involves a company creating prospective buyers or the marketing stage. All the efforts from a firm at this stage are directed in the attraction of new potential customers. These customers generally hold expectations about the company in addition to how competent it is. This stage therefore becomes very important in the determination whether the customer shall be satisfied for a long time and whether the firm shall retain them. Companies are advised to be as realistic as possible since if they create expectations that are too high they might get the customer all too easily but they risk losing the customer just as fast due to lack of satisfaction. This means the customer shall not be retained and therefore the revenues and survival rates are significantly affected.
CRM application is all about the creation of a relationship with a customer that is based on trust and mutual respect since there is mutual value between the two parties. Since the relationship is desired to be long-term, customer satisfaction is very important and it should be strong enough to retain the customer. Therefore, a firm should struggle to find more ways to satisfy the customer, to provide significant rewards for their loyalty and repetitive purchases and to provide more quality services. This shall make the customers remain ever loyal and cross sell the firm to their friends and relatives.

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