Aw: [projectvrm] On "How Valuable Are Your Customers"… CLTV vs Customer Perceived Value

["Graham Reginald Hill" < >]

Hi Doc

 

As the article makes out, it is a rather simplistic calculation of CLTV for marketers abstracted from Sunil Gupta's HBS teaching materials. It overweights revenues, and underweights costs and risk. Far fewer companies use CLTV than the article implies and even fewer of them do it properly. Sunil Gupta has written extensively about calculating CLTV (see Gupta et al on Modelling Customer Lifetime Value http://www.anderson.ucla.edu/faculty/dominique.hanssens/content/JSR2006.pdf for a thorough review).

 

More recent thinking about CLTV recognises that customers create additional value through directly referring customers to a company, e.g. by promoting Canon's products on social networks like this one. Customers also create additional value through indirectly influencing customers, e.g. by tagging photos you took on Flickr with the details of the Canon products used on Flickr. And finally, customers also create additional value through the feedback they provide to companies, e.g. comments about Canon products on photography blogs, that can be used to drive improvements in innovation, marketing and service. V Kumar has written more recently about caculating Total Customer Engagement Value (see Kumar et al on Undervalued or Overvalued Customers: Capturing Total Customer Engagement Value https://blogs.darden.virginia.edu/venkatesanr/files/2012/07/Journal-of-Service-Research-2010-Kumar-297-310.pdf for more details).

 

What Gupta's traditional CLTV and Kumar's TCEV have in common is that they are about the value of customers to the company. What is missing is any consideration of the company's perceived value to the customer. This is much more difficult to calculate than CLTV or TCEV as axiologically speaking, most value for customers is phenomenologically created when a product is used in the customers context (see Chandler & Vargo on Contextualisation and Value-in-Context: How Context Frames Exchange http://plaza.sdlogic.net/uploads/2/7/3/5/2735531/chandler_vargo_2011_mt.pdf for more details). Although this is much less well developed than CLTV, early work on Customer Perceived Value does provide a starting point to think about value from the customer's perspective. Anu Helkkula's 2010 PhD led to the development of the VALCONEX measurement metric (see Helkkula et al on A Framework for Measuring Phenomenological Value: VALCONEX - Value in Context Experience http://www.cerog.org/lalondeCB/SM/2010_lalonde_seminar/papers/p16-157-helkkula-kelleher-pihlstrom-rev29-03-2010.pdf for more details). The work on Service-Dominant Logic with its emphasis on mutual value co-creation by companies and customers enabled by sharing resources during interactions, is probably the best way to move forward in this complicated area (see Vargo & Lusch on Service-Dominant Logic: Continuiing the Evolution http://www.sdlogic.net/Vargo_and_Lusch_2008_JAMS_Continuing.pdf for more details). This approach ties in rather nicely with colleague Alan Mitchell's recent post at the Ctrl-Shift bog on Flourishing in a Personal Information Management Services (PIMS) Envirinment https://www.ctrl-shift.co.uk/news/2014/07/14/flourishing-in-a-pims-environment/.

 

Somewhat paradoxically, despite having been the Customer Value Management Guru at CRMGuru.com (now CustomerThink.com), I no longer recommend that my clients spend too much time worrying about calculating CLTV. It is a highly misleading backward-looking measure and it all too easily distracts from the process of improving forward-looking business operations. Instead, I use a simple framework and toolkit based on service-dominant logic's value co-creation to focus my clients on how value is created, or destroyed during interactions with customers.

 

Best regards from Cologne, Graham

-- 
Dr. Graham Hill

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Partner
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Senior Associate
Nyras Capital
http://www.nyras.co.uk

 

 

Gesendet: Donnerstag, 17. Juli 2014 um 07:38 Uhr
Von: "Doc Searls" < >
An: "ProjectVRM list" < >
Betreff: [projectvrm] On "How Valuable Are Your Customers"

That's the title of an HBR piece <http://blogs.hbr.org/2014/07/how-valuable-are-your-customers/> that begins this way:

> Not all customers are created equal. If you’ve ever run a business (or even just been a customer yourself), then you know that some customers provide more revenue (and incur fewer costs) than others. Figuring out which to focus on and invest in is critical if you want to maximize your profit.
>
> Many companies use a calculation called customer lifetime value (CLV) to determine how much a customer is worth in comparison with others. Even if you don’t have to calculate CLV yourself (there are lots of tools that will do the math for you), it’s important to understand the concept so you can decide whether to use it when making marketing and sales decisions.
>
> So what exactly is CLV? Here’s a basic definition: The amount of profit your company can expect to generate from a customer, for the time the person (or company) remains a customer (e.g., x number of years). At its core, CLV is the present value of all future streams of profits that an individual customer generates over the life of his or her business with the firm.


Some CLV is calculable, obviously. And some of those calculations are well known to us. Being a million+ mile flyer with United makes me worth a lot to them, and them to me. (Let's leave the coercion issue — a big one — aside for now.)

But what about the stuff not measured with money alone? What about the externalities of genuine loyalty? I figure I've spent about $2500, total, on Canon cameras and lenses, and another $1500 or so on rentals. But I've probably contributed to sales of Canon goods many times those amounts. And nearly all the shots I put up on Flickr <https://www.flickr.com/photos/docsearls/>, which get seen about 15,000 times per day on average, were shot with Canon gear — information featured prominently with each shot.

What would be a better metric, from the customer-side — the VRM — perspective?

Doc