A full understanding of each customer’s lifetime value will enable a firm to maximize its own value by maximizing the number, scope and duration of such value-creating customer relationships. We discuss a set of strategies that can be used by firms to maximize their customer’s lifetime value. These strategies can be broadly classified into “across-customer” strategies and “within-customer” strategies. By using CLV as a cornerstone to design and implement these strategies, firms can ensure profit maximization.

Across-customer strategies include (a) efficient customer selection by targeting customers with high profit-potential, (b) managing existing sets of customers and rewarding them based on their profit-potential and (c) investing in high-profit customers to prevent attrition and thereby ensuring future profitability. Within-customer strategies aim at maximizing profits by either increasing revenue or reducing cost or by doing both. The within-customer strategies include multi-channel shopping (revenue maximization), optimal allocation of resources (cost reduction) and, managing the purchase sequence of the customers (revenue maximization and cost reduction). Maximizing the brand value, and customer referral value are other key within-customer strategies.

Figure 1 lists these cutting-edge marketing strategies that can be used in maximizing customer lifetime value. I call it “The Wheel of Fortune”. Implementing these strategies is a cyclical process. The knowledge acquired in implementing these strategies should be used as the basis for deciding on which customer to pursue in the future and how to select the most profitable set of customers.

Figure 1: The Wheel of Fortune- Potential Strategies for Maximizing CLV:

As illustrated in Figure 1, the CLV maximization cycle starts with selecting the right customers based on future profitability. The strategies that follow this, aim at efficient management and retention of customers. The next step is to manage loyalty and profitability of these customers simultaneously. The ROI from the limited marketing resources can be maximized by optimally allocating resources to profitable customers, and contacting them through the most effective communication channels at the most appropriate time with the right message.

The next strategy involves pitching the right product to the right customer at the right time. This can be achieved by predicting the purchase sequence of the customers, and adapting the marketing initiatives accordingly. Also, preventing the attrition of customers is an important step in retaining the most profitable customers. This could be achieved by obtaining a good understanding of the spending patterns and intervening at the right time to prevent the customer from terminating the relationship with the firm. With the co-existence of online stores, catalog-based businesses and physical store locations, managing customers in the multiple channels is an important strategy. By encouraging customers to buy from multiple channels and by encouraging them to use the lower-cost channels to make their transactions would enable firms to maximize profits.

The next strategy is the one used by firms to link a customer’s brand value to the customer’s profitability. By following this strategy firms can identify areas for improving brand value and optimally allocate resources to improve the brand value as well in improving customer profitability.
Subsequent strategy links the acquisition and retention of customers to profitability. By targeting the right customers and retaining customers with high profit potential, firms can ensure future profitability. The experience (or information) obtained by implementing these strategies is taken into account while making future decisions about customer selection and other strategies, thus ensuring a dynamic process that can be exploited to maximize profits. Typically, firms focus on acquiring & retaining customers that are of lower cost. But a strategy focused on acquiring & retaining customers based on CLV would bring significantly more profits to the firm.

The last strategy has 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 for a specific customer, is introduced 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 firm’s profits, through savings in acquisition costs and addition of new customers by way of customer referral.