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CLV: A Forward Looking Measure

Watch Raj Venkatesan explain how CLV helps marketers plan forward and how brand and CLV interact.
Now let’s see what we have learned about customer lifetime value. The first thing to know is on the customer’s lifecycle, so if you think about the time of acquisition of a customer to today.
Where should the firm be looking? What are the metrics that lets them identify customers who are going to be profitable in the future? You could be looking at metrics like share of wallet, past customer value, past period revenue, and they’re all backward looking. So what happens is if you have a customer who has been increasing in profits over time, and you’re here today looking at this customer. A backward metric will say, yeah, the customer is good. But what you really need is a forward looking metric like customer lifetime duration or customer lifetime value. That will tell you, wait a minute, this customer has about a few months, a few years left of good profit.
And then they’re going to start giving you losses. So customer lifetime value gives you a forward looking measure of allocating resources for individual customers. Now, customer lifetime value is also connected to the other big asset a firm has that are brands. So how do these two assets interact with each other? How does brand equity interact with customer lifetime value? So the way to think about it is to say, firm takes marketing actions. These actions effect the customer’s mindset. Their awareness of the brand, the associations they have with the brand. So for Red Bull, an association would be energy, wings and so forth. All of those awareness and associations leads to brand equity.
At the same time, the marketing actions effect customer behavior. And those behaviors would be acquisition and retention. And these behaviors lead to customer lifetime value. So brand equity and customer lifetime value derive from the same marketing actions. So how does a manager think about these two assets and manage them effectively? So recent research has shown that look, these things are all derived as a system. So marketing actions can effect first the mindset. And by effecting the mindset, they can then effect behavior, which will eventually effect customer lifetime value. But there is also a direct action sometimes from action straight to behavior. And then consumers could be thinking about the behaviors effecting their impressions about the brand.
And there is an interaction between these two that goes on between each other.

Learn how CLV is a forward looking measure that can let marketers know how long they can expect to earn a profit from a customer. Then connect the dots between brand architecture and CLV.

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