Linking Investment in Branding to Customer Profitability6

A typical dilemma faced by any corporate board is whether to invest in building brands or to invest in building the customer base. Which of these routes will ensure maximum profitability? The answer is probably to invest in both. Also, it would be difficult to estimate how investing in brand building contributes toward attaining higher profitability .A key way to address these issues is to establish a link between brand value and CLV to manage individual customer brand value, This result in maximizing the CLV. This strategy explores the link between individual brand value (IBV) AND CLV, and it offers insights about bridging the gap between IBV and CLV. Brand equity and customer equity have traditionally been viewed as two separate marketing assets. However, building a brand through traditional approaches does not necessarily achieve growth in the CLV. Measurements on components of an individuals brand value are suggested so that a firm can identify how its customers value the brand. This framework enables a firm to optimizes a customers lifetime value, thereby allowing simultaneous growth in brand equity and customer equity. Based on these results, the firm can redesign its communication strategies to cater to the needs of such customers. In one of the implementations, after the brand value was linked to CLV, the scores of the components of the brand value were improved to yield a higher CLV.

Acquiring Profitable Customers7

The strategies listed previously are aimed at selecting the right customers, managing them profitably, and retaining them through the optimal allocation of resources. Knowledge acquire in implementing these strategies could be used to acquire prospective customers with high profit potential. This approach to link acquisition and retention of customers to firm profitability is a key contribution of the CLV-based approach. While making direct marketing investment decisions, many marketers still overemphasize shortterm cost over long-term gain, leading to companies pursuing customers who are cheap to acquire and cheap to retain without essentially being profitable. Conventionally, most companies uses customers acquisition and retention rate to measure their marketing performance. This approach could diminish returns to the form because the might be spending more on acquiring and retaining a customers than on what the customers brings in as revenue. Further, different groups of customers require different level of acquisition/retention spending to maintain their relationship.

The CLV approach recommended in this book suggests optimizing the acquisition/retention cost and directly links suck efforts to overall profitability. This strategy helps form to decide which customers are worth chasing and which dormant customers should be pursued to come back to the firm. Firms should use customer profiles to identify the customers who are most likely to be profitable. This can be achieved by identifying customers with similar characteristics as existing high-CLV customers and by adopting an appropriate marketing strategy. After the customer behavior of a catalog retailer was observed, customers where segmented based on their cost of acquisition and cost of retention. It was found that the largest segment(32%) was made up of customers who where easy to acquire and retain. But the accounted for only 20% of the total profit. On the order hand, 40% of the total profit came from the smallest group of customers(15%), who where expensive to acquire but cheap to retain. Therefore, linking acquisition and retention to profitability helps the firm to target and retain profitable prospects and customers. This demonstrates the importance of the efficient allocation of marketing budget across acquisition an retention initiatives to maximize profitability.

Viral Marketing Strategies8

Although the CLV metric has been shown to outperform all other behavioral metrics such as RFM or SOW, it does have one main limitation as a complete measure of a customers value. Even though all customer relationship management (CRM) programs collect data on transactions and demographics, their fail to measure data on customer attitudes. And, event if they do collect data on customer data attitudes, such as in the form of surveys, this attitude measurements are often left out of the estimation of CLV. It is clear that not only can customers contribute to the firm through their own transactions (direct profit), but they also have an impact on the transactions of other customers through wordof-mouth and referrals (indirect profit), and both can increase the value of that customer to a firm. A recent study showed that less behaviorally loyal customers. It was also shown that the referral process is not only able to bring in customers without excessive marketing expense, it is also able to bring in customers who are not likely to join through traditional advertising and promotion by the company. While designing a marketing strategy to target our highest-value customers, we need to consider the actual value that each customers can bring to the table in terms of both direct and indirect profit. There are two approaches for maximizing customer profitability: maximizing CLV and managing customer referral behavior. The concept of Customer Referral Value (CRV), which is defined as the value of the referral behavior of a specific customer, is introduction in implementing this strategy. This metric enables managers to measure and manage customer referral behavior. This dictates that customers be valued based on their indirect impact on the

firms profits, through savings in acquisition cost and the addition of new customers by way of customers referral. Implementation/ Interaction Orientation9 When implementing these strategies, firms need to fundamentally reorient their marketing approach. Traditionally, firms had a product-centric approach, and managers were focused on making selling superior products. In this process, the entire focus remained on the products. For firms to maintain future profitability, a customer-centric approach becomes imperative. In this approach, the timely interaction between the customers and the firm, and effective management of this interaction, is recognized as major source of competitive advantage. We define this interaction between the firm and the customer, which helps in developing organizational resources for successful customer management strategies, as interaction orientation. In the interaction-oriented approach, marketing activities are conducted with the customer. The customer is viewed both as a source of business and as resource for the firm. The power of customer-to-customer linkages is recognized and nurtured as a customer empowerment component. The various components of the interaction-oriented approach are as follows: Customer capacity is the belief that the individual customer is the unit of every marketing action or reaction. Interaction response capacity is the degree to which a firm can provide successive products or services based on the previous feedback by a specific customer and all other customers. Customer empowerment is the extent to which customers connect with the firm and other customers, collaborating and sharing information, praise, and criticism about the firms products and services. Customer value management is the extent of which a firm is able to quantify and calculate the individual customer value and reallocate its resources to higher-value customers based on this evaluation.

By adopting these measures, firms can customize their products and services by better understanding the needs of their customers satisfaction, generates positive word-of-mouth, and leads to acquiring and retaining profitable customers.