Page 158 - Marketing Management

CREATING LONG-TERM LOYALTY RELATIONSHIPS | CHAPTER 5 135

TABLE 5.3 A Hypothetical Example to Illustrate CLV Calculations

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Number of Customers 100 90 80 72 60 48 34 23 12 6 2
Revenue per Customer 100 110 120 125 130 135 140 142 143 145
Variable Cost per 70 72 75 76 78 79 80 81 82 83
Customer
Margin per Customer 30 38 45 49 52 56 60 61 61 62
Acquisition Cost per 40
Customer
Total Cost or Profit –4,000 2,700 3,040 3,240 2,940 2,496 1,904 1,380 732 366 124
Present Value –4,000 2,454.55 2,512.40 2,434.26 2,008.06 1,549.82 1,074.76 708.16 341.48 155.22 47.81

TABLE 5.4 Margin Multiple

Discount Rate

Retention Rate 10% 12% 14% 16%
60% 1.20 1.5 1.11 1.07
70% 1.75 1.67 1.59 1.52
80% 2.67 2.50 2.35 2.22
90% 4.50 4.09 3.75 3.46

But information cuts both ways. For instance, customers now have a quick and easy means of doing
comparison shopping through sites such as Bizrate.com, Shopping.com, and PriceGrabber.com. The
Internet also facilitates communication between customers. Web sites such as Epinions.com and
Yelp.com enable customers to share information about their experiences with various products and
services.Customer empowerment has become a way of life for many companies that have had to adjust
to a shift in the power with their customer relationships.

Customer Relationship Management
Customer relationship management (CRM) is the process of carefully managing detailed
information about individual customers and all customer “touch points” to maximize loyalty. 50
A customer touch point is any occasion on which a customer encounters the brand and product—
from actual experience to personal or mass communications to casual observation. For a hotel,
the touch points include reservations, check-in and checkout, frequent-stay programs, room
service, business services, exercise facilities, laundry service, restaurants, and bars. The Four
Seasons relies on personal touches, such as a staff that always addresses guests by name, high-
powered employees who understand the needs of sophisticated business travelers, and at least
51
one best-in-region facility, such as a premier restaurant or spa.
CRM enables companies to provide excellent real-time customer service through the effective
use of individual account information. Based on what they know about each valued customer,
companies can customize market offerings, services, programs, messages, and media. CRM is
important because a major driver of company profitability is the aggregate value of the company’s
customer base. 52
PERSONALIZING MARKETING The widespread usage of the Internet allows marketers to
abandon the mass market practices that built brand powerhouses in the 1950s, 1960s, and 1970s for