Increasing the Customer Lifetime Period

 

How to increase the customer lifetime period

One way of increasing customer lifetime value (CLV) is to undertake marketing initiatives to reduce the churn rate (and therefore increase the retention rate) of customers – which will have the impact of increase in the average customer lifetime period.

Increased loyalty can generally be achieved by:

  • Development of new products that meet changing needs of customers
  • Providing good levels of customer service
  • Having a complaints analysis and recovery systems in place
  • Maintaining good value for money – being considerate in pricing strategies
  • Building a strong brand
  • Being perceived as a good corporate citizen
  • Building customer relationships
  • Providing financial incentives for loyalty – such as loyalty/frequent buyer programs
  • Adding switching barriers

When to look to increase customer lifetime period

Significant return should be achieved by increasing customer retention, and therefore the average customer lifetime period, when:

  • Customer profitability is expected to increase over time
  • Customer relationships usually start with a small trial of a product or service
  • Customer revenues are received gradually over time – as opposed to primarily an upfront purchase – such as the case of home loans where interest payments are made on a monthly basis
  • New customers are very expensive to acquire
  • The customer perceives some value in a customer relationship, such as trust, information, service, pricing value, and so on – which allows lifetime periods to be quite long

When NOT to focus on Increasing the customer lifetime period

However, if the following conditions apply, then increasing the customer lifetime period may NOT add significantly to the firm’s customer lifetime value:

  • The majority of customer revenues is either a one-off purchase (such as a wedding or a home purchase or a visit to a tourist destination) or where the majority of the revenue is generated early in the customer relationship
  • It is very cost effective to acquire new customers

Related Topics

Does the average lifetime period make sense?