Q

Customer lifetime value vs. current value

Expert Martha Rogers explains why businesses need to focus on the lifetime value of a customer, not the value of the current transaction.

The executives in my organization have established that we should not spend more money marketing to a customer than that customer will spend in a single purchase. How can I convince them that we should instead base our spending on our customer's lifetime value?
My answer to the person who asks this question is another question: How fast can you get a different job? If you are working with executives who insist that the value of a customer is no more than the value of the current transaction, then I'm afraid your company is not going to be very successful for very long and, therefore, your job is in jeopardy. I'm only half joking, because most companies today understand that it's the customer's lifetime value, not just the value of the current transaction, that determines what we should spend on each customer. For example, we've done work with major gambling casinos, and in their case, they may handle the exact same complaint from two different customers in entirely different ways. For example, if you are a high roller and you visit the casino fairly often and you spend a lot of money, if you have a problem, the casino will probably solve it with a free weekend in their best suite. But if you come in rarely, gamble occasionally and take a meal here or there, then that same casino will probably solve the same problem with a free bottle of wine. So, the response of the casino and the amount invested in recovery is not determined by the problem, it's determined by the customer.

I don't know how to convince people who can't see that the value of the transaction is a distant second to the value of the customer relationship itself. The key is to get your numbers together and make sure that you are able to show that the customer relationship is really at the heart of increasing the value of the company.


Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.
This was first published in August 2008

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