The Wheel of Fortune Strategies to Maximize CLV:

Optimal Allocation of Resources:

Firms are often constrained by limited marketing resources. This poses a challenge because these resources cannot be allocated to all their customers. Ideally, firms should be investing only in customers who are profitable. However, many companies continue to spend resources on a large number of unprofitable customers. They either invest in customers who are easy to acquire but are not necessarily profitable or try to increase the retention rate of all their customers, thereby leading to wastage of limited resources. One reason for this is that these firms have not identified who their most profitable customers are and how resources should be spent on them to maximize profitability.
This strategy makes detailed recommendations on optimal allocation of resources to individual customers. The first step is to identify the most profitable customers, and the customers who are most responsive to marketing efforts. The second step is to figure out the right mix of different channel contacts for each customer. This depends upon how responsive each customer is to these channels of communication (e-mail, direct mail, telephone, direct visit by a salesperson), and how cost-effective these channels are.

The next step in implementing this strategy is to decide how frequently the customer should be contacted, and what the inter-contact time should be. Also, the various factors that affect customer behavior such as upgrading (to a higher product category) and cross-selling (in a different category) etc. needs to be analyzed. Therefore, by carefully monitoring the purchase frequency of customers, the inter-purchase time, and the contribution towards profits, managers can determine the frequency of marketing initiatives in order to maximize CLV.

This strategy suggests that it is unwise to inundate all customers with marketing initiatives. It has been shown that such an approach only alienates customers and makes them less responsive to such efforts. Whereas, a more measured approach is recommended where each customer’s responsiveness to each channel of communication is taken into consideration and a carefully designed strategy is implemented in allocating the limited marketing resources.