Question

Topic = Customer  lifetime value

defination (100 words ) explain (150 words ) and give two examples ( eg. how it works , steps involved use and limitations and specific products organisations or issues and etc ) around 150 words plagiarism free

Answer 1

Customer Lifetime Value (CLV) is a metric that represents the total net profit a company makes from any given customer. It is a projection to estimate a customer's monetary worth to a business after considering the value of relationship with the customer over the period of time. It also helps in determining how much money company wants to spend in acquiring new customers and how much repeat business company expects from it's existing customers.

It is calculated by subtracting the cost of acquiring and serving customer from the revenue gained from the customer and takes into accounts statistics such as customer costs per visit, total number of visits which can then be bifurcated into Days, Weeks, Months etc. A profitable customer is one who that overtime yields a revenue that exceeds by an acceptable amount of company's cost of attracting, selling and servicing that customer.

One example which we can take here is of an E-Commerce Company say Amazon. Suppose Amazon spends heavily on offering huge discounts to attract new customers then the cost for Amazon will be the amount of discounts offered by it to attract and retain the particular customers. Over a period of time if those customers becomes loyal to Amazon due to its' quality service, then even though Amazon stops offering discounts, it will be able to retain it's customers.

We can take second example of a Fashion Designer. Say a Fashion Designer has recently started its own business and wants to attract and retain new customers. It has to advertise heavily to attract new customers. Hence one of the factors for CLV will be advertisement cost . Thens the company should also make an online presence where it has to provide free advice or provide latest designs on sale to make new customers. Once the customer keeps it's trust on the company then it will be easily retain the customer for long periods of time.

There are certain limitations in CLV though. The company needs to spend heavily on discounts, promotions, freebies to attract new customers. For this it will need a high budget which may be difficult for a new business.