INMA_A01.QXD

Lifetime value modelling at a segment level (4) is vital within marketing since it

answers the question:

How much can I afford to invest in acquiring a new customer?

If online marketers try to answer this from a short-term perspective, as is often the case,

i.e. by judging it based on the profit from a single sale on an e-commerce site, there are

two problems:

1 We become very focused on short-term return on investment (ROI) and so may not

invest sufficiently to grow our business.

2 We assume that each new customer is worth precisely the same to us and we ignore

differentials in loyalty and profitability between differing types of customer.

Lifetime value analysis enables marketers to:


Plan and measure investment in customer acquisition programmes;


 Identify and compare critical target segments;


 Measure the effectiveness of alternative customer retention strategies;


 Establish the true value of a company’s customer base;


 Make decisions about products and offers;


 Make decisions about the value of introducing new e-CRM technologies.

Figure 6.11 gives an example of how LTV can be used to develop a CRM strategy for

different customer groups. Four main types of customers are indicated by their current

and future value as bronze, silver, gold and platinum. Distinct customer groupings (cir-

cles) are identified according to their current value (as indicated by current profitability)

and future value as indicated by lifetime value calculations. Each of these groups will

have a customer profile signature based on their demographics, so this can be used for

customer selection. Different strategies are developed for different customer groups

within the four main value groupings. Some bronze customers such as groups A and B

realistically do not have development potential and are typically unprofitable, so the

CHAPTER 6· RELATIONSHIP MARKETING USING THE INTERNET

Figure 6.11An example of an LTV-based segmentation plan

Retain

and Extend

Gold

Retain

Reduce

costs Extend

Platinum

Bronze Silver

(^12)
3
F
Y
X
A
B
C
G H
High
Low High
Low
Current value
Future potential value