customer lifecycle value & relationship marketing
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clv and relationship marketing explainedTRANSCRIPT
Customer Lifetime Value & Relationship exercise in Retail
BankingPresented By:Ankur Ashok B009Anshul Gupta B023Ganesh Padhi B047Richansh Kumar B038Iravatee Chitte D010Sagnik Niyogi D043Arihant Jain D024
Underlying logic of customer benefits to the organization
Customer Satisfaction
Customer Retention and Increased Profits Quality Services
Employee Loyalty
Building Customer Relationships
CLV attempts to determine the economic value customers bring over their “lifetime” with the business
At the heart of understanding CLV lies the recognition that a customer does not represent a single transaction but a relationship that is far more valuable than any one time exchange.
What is Customer Lifetime Value (CLV) and Why is it important ?
Because if you don’t know what a client is worth, you don’t know what you should spend to get one or what you should spend to keep one
Understanding CLV is incredibly important for customer service
professionals and for businesses of all types.
Retailers often refer to two forms of lifetime value analysis:Historical lifetime value simply sums up revenue or profit per
customer.Predictive lifetime value projects what new customers will
spend over their entire lifetime.With historical CLV analysis, you’ll need to wait a couple years
to know the CLV of those customers. With predictive CLV analysis, you’ll know the long-term value of those new customers right away.
Of course, predictive CLV is only useful in so far as the projections are accurate!
The differences between Historical and Predictive CLV
The CLV of a customer i is the discounted value of the future profit yielded by this customer
Revenue Forecasts
Present Value Calculations
Cost Forecasts CLV
Discount Rate
Marketing Motivations of CLV
• Focus on groups of customers of equal wealth
• Evaluate the budget of a marketing campaign
• Measure the efficiency of a past marketing campaign by evaluating the CLV change it incurred
So, What is a Cu$tomer Worth?
Revenue and Cost Drivers in Retail Banking
Cost Drivers
Fixed Cost
• Building Infrastructure,
• Software
Variable Costs
• Cost of funds
• Risk factors
Revenue Drivers
Fees based income
• Lockers
• Travellers cheque & FOREX services
• Deposits punitive charges
• Services charges
Interest on deposits income
Definitions:
Churn rate, the percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate.
Discount rate, the cost of capital used to discount future revenue from a customer. Contribution margin Retention cost, the amount of money a company has to spend in a given period to
retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc.
Period, the unit of time into which a customer relationship is divided for analysis. A year is the most commonly used period. Customer lifetime value is a multi-period calculation, usually stretching 3–7 years into the future. In practice, analysis beyond this point is viewed as too speculative to be reliable. The number of periods used in the calculation is sometimes referred to as the model horizon.
Calculating CLV (1/3)
Thus, one of the ways to calculate CLV, where period is a year, is as follows
Calculating CLV (2/3)
• GC is yearly gross contribution per customer, • M is the (relevant) retention costs per customer per year (this formula assumes the
retention activities are paid for each mid year and they only affect those who were retained in the previous year)
• n is the horizon (in years)• r is the yearly retention rate• d is the yearly discount rate.
Simplified model It is often helpful to estimate customer lifetime value with a
simple model to make initial assessments of customer segments and targeting. Possibly the simplest way to estimate CLV is to assume constant and long-lasting values for contribution margin, retention rate, and discount rates.
Calculating CLV (3/3)
Getting Retaining Satisfying Enhancing
To achieve this, there are four levels of strategies that a service company can employ.
Goals of Relationship Marketing
The primary goal of relationship marketing is to build and maintain a base of committed customers who are profitable for the organization
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This phase comes after CLV determination Segmentation ( 80:20 pyramid,
Expanded customer pyramid)
On the basis of the above factors one of the below levels of bonding is employed.
RELATIONSHIP EXCERCISES/STRATEGIES
Financial
Structural
Customization
Structural
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Provide financial incentivesUsed in most situationsMost easy to imitateShort terms gainsEasy for competitors to imitateCustomer tend to switch whenever better
deal arises
Level 1: Financial Bonds
Low rates on Demat AccountPayback Loyalty CardEMI optionsPre-qualification for loan eligibilityPreferential interest rates and/or processing
fees on Loan productsDiscounts on Locker facility and preferential
allotmentPreferential pricing on purchase of gold,
sale/purchase of forex
Financial Bonds by ICICI
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Price is important but social bonds go furtherMany not tie customers permanentlyMore difficult for competitors to imitate than financial bondsCan encourage longer relationship with consumersWith financial incentives become very effective
Level 2: Social Bonds
Dedicated Relationship Manager is assigned who acts like a single POC to service varied needs like buying property and seeking loans
These experts bring to the table ICICI Bank's expertise across various financial products, offering you
Enhanced service levels Quicker responses End-to-end solution
More than anything, this Relationship Manager becomes the face of ICICI for the customer and he understands the needs of the customer due to repeated interactions
Social Bonds by ICICI
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Make your processes flexibleCustomized to individual requirementsTwo important aspects
Mass customization Personalized Customer interaction
Even more difficult to imitate than financial and social bonds
Level 3: Customization Bonds
Needs of every individual investing is different. Some want growth, others want stability
ICICI creates, reviews and rebalances your investment plan to meet your needs.
A 5 stage process is followed, where your Relationship Manager and a team of experts will work closely with you to customize your investment.
Step 1: Understanding your Risk Profile Step 2: Asset AllocationStep 3: Investment AdvisoryStep 4: Review your InvestmentsStep 5: Matching your changing needs
Customization bonds in ICICI
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Level 4- Structural Bonds Looks in to customers processesUse of technology and expertise Improve customer processesTotally customized according to requirementsMost difficult to imitate
Level 4: Structural Bonds
ICICI provides services that help strengthen business relationships by ensuring reliability and speed in your business documentation and payments
Provides credit facilities smoothen your cash flows, ensuring business never suffers. These require close collaboration and data sharing
ICICI systems are interlinked with L&T’s payroll for automatic credit of salaries
Structural Bonds in ICICI