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Member's Question about Customer Lifetime Value
Mei Ling Fung Replies to GCCRM member
Ms. Mei Lin Fung
Chairman, www.isoe.com
G-CEM Global Adviosr
www.isoe.com
Subject : questions about Customer lifetime value
Question : 1.The study history and actuality of LTV 2. Where can I get related books and data?
Q1: Life time value was first fully described in Arthur M. Hughes - in his book on Database Marketing.It is called "Customer Lifetime Value" in that book.
In 1998, I made a presentation in Silicon Valley extending the concept of CLV into overall customer profitability measurement at the Marketing SIG of the Software Development Forum, to a record audience of over 100 people.
Another firm Target Marketing was also using it with Retail marketing for the Fortune 500 for the past 10-15 yesrs.
Another CRM Guru, Naras Eechambadi, Quaero, LLC pioneered its use at top tier banks, among other customer marketing analytic tools.
CLV is in widespread use among almost all large consulting firms in the analytics and marketing field in the US.
The sophistication has increased with usage. Now people are extending it to valuing customers as financial assets. I found out that IBM's CRM consulting group was very interested in this customer asset area because the Securities Exchange Commission in the US had put on notice that
perhaps in the lonter term future standard financial reporting might have to describe the value of intangible assets like long term customers. IBM was researching the area to see what they could
contribute to this new possibility in reporting.
Q2 : The book by Arthur M. Hughes "Database Marketing" is an elementary reference.
The next one I'd recommend is Driving Customer Equity by Roland T Rust, Valarie A Zeithaml and Katherine N. Lemon
"How Customer Lifetime Value is reshaping Corporate Strategy" It is published by Free Press
Additionally Paul Greenberg's book "CRM at the Speed of Light" has in its appendix, a tutorial by me on CLV.
Subject : about CLV
Question : One of the basic step of caculating the CLV is to predict the future income and cost of the customer.My question is,how to predict these costs and income accurately? If these data are wrong, then CLV is meaningless.
Predicting cost of servicing and income from customers accurately is difficult - I fully agree.
It is most difficult the first time you start, because you are making a guess. How to make the guess more accurate? Continue to compare your guesses against what actually happens.
In the Silicon Valley, many companies have started forecasting revenue, expenses etc on a monthly basis. They might do something like a 6 month or 12 month forecast. This might be a new idea in China.
How they get more accurate is that each month, they compare the guess they made for the latest month, to the actual results that are counted each month.
After doing this for 6 months, you end up being much better at guessing and it becomes more dependable as a forecast. At any time, you probably know or understand only 50% or less of the reason why your forecast will come true.
But it is still worth doing. Because your competitors will find it hard to beat you if you understand better than them.
Over in Silicon Valley, almost everyone does it this way. Because those that did not, have gone out of business.
I learn this method at Intel. They were doing it back in the early 80's. The method is called stagger charts forecasting.
I'll give a brief example
Month 1 2 3 4 5 6 7 8 9 10 11
Actuals 28 27 27 30 33
Forecast
Mth 1 30 30 30 35 40 40 40
Mth 2 28 28 28 35 40 40 40 40
Mth 3 __ 27 25 30 35 35 35 35
Mth 4 __ 27 30 35 35 35 35 35
Mth 5 __ 30 35 35 35 35 35
Mth 6 __ 33 33 35 35 35 35 ___
Each you analyze what is behind the actuals, to understand what happened, it improves your ability to forecast ahead. Provided things don't change too much.
CLV will then become more and more meaningful. It cannot be accurate the first time. It is one of those things, that as you try to calculate it, you just get better and better at understanding your business, and making better and better decisions because you understand it better.
About GCCRM Consulting Associates
Formed by 14 international well-known CRM elites from United States, Europe and Asia, they aim to provide "World Class CRM Training" to enterprises in China. Their value propositions are vendor-neutral, industry-specific, global-perspective and tailor-made corporate CRM training. G-CEM Consulting Associates have offices in Shanghai and Hong Kong. For more information, please email to associates@greaterchinacrm.org, or call (Shanghai) 86 21 6351 2506 / (Hong Kong) 852 2851 0356.connection in the technology industry. She was Managing Director at Wainscott Venture Partners, an IT-focused venture capital company with offices in Washington DC, New York, and the Silicon Valley, until 2001. Mei Lin advocates the discipline of Customer Lifetime Value analysis to achieve successful CRM investments and sustainable business models.
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About the Author
Mei Lin Fung works with Oklahoma State University's Spears Business School to offer certificate and performance management programs in business-customer relations. She recently assisted communications firm Avaya in developing an innovative public and private customer relations partnership, honored with the American Society of Competitiveness' Phillip B. Crosby Golden Medallion. Fung was an early pioneer in CRM, having worked with both Tom Siebel, founder of Siebel Systems, and Marc Benioff, founder of salesforce.com in 1988 at Oracle at the very beginning of the CRM industry. Blog: Professionals Earn Customer Trust |
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