Question

• How do LTV and RFM affect the customer pyramid?
• What is the purpose and importance of the customer pyramid?

Answer 1

Customer Pyramid is a business tool to scientifically gauge and analyse the customer ‘s behavior towards the given firm and seeks to highlight the customer as the ultimate end of the company and customer satisfaction as its end goal.

LTV or the life time value seeks to calculate the value of a customer through the life cycle of the product though on a comparative note.

RFM (Recency, Frequency and Monetary) analysis seeks to analyse the psychology or customer behaviour on three basis—how often do they purchase, how frequently do they buy and how much have they spent on in purchasing the commodity—it is also called the effective demand or the desire backed by the purchasing power to buy the commodity.

Customer psychology is not fixed or constant , a regular user of the given commodity could be termed as a loyal customer of the commodity, But it may not be necessary that the customer may continue to buy the commodity regularly , more so if then market is flooded with close substitutes for the commodity in question

Customers can be categorized on the basis of the brand loyalty exhibited by them – the loyal customers—those who regularly purchase the commodity in question and are more or less permanently likely to buy it .

Another group could be those customers who could be , in the future, convinced of the merits of the commodity over its close substitutes available in the market.

There could also be present a group of customers who highly irregular buyers of the given product.

While it is important to serve the needs of the loyal customers, it also is of utmost importance that the potential customers and those who buy at irregular intervals are candidly guided to buy the product in question and increase their frequency of purchase.

Efforts that are clear of their goal of --customer satisfaction, and make it amply clear that 'customer is the king' are definitely more effective in luring the potential and less frequent buyers to purchase the commodity and improve their satisfaction thereby creating a brand loyalty.