Why read this? Here’s a very simple question; when making critical decisions about customers doesn’t it make great sense that you should know the value of that customer before anything happens to adversely affect your relationship with them? Customer lifetime value is both a customer service and marketing concept that projects the value of that customer over the entire history of their relationship with you. Belief in the customer lifetime value concept tends to place greater emphasis on customer service and long-term customer satisfaction rather than short-term goals. This management white paper quickly introduces the strategy and demonstrates why every customer deserves your best “big picture” assessment.

 

The Lifetime Value of A Customer

What Drives Your Service Philosophy?

 

What drives your service philosophy? Is it competition or your own personal view of what your company should be known for? Do you believe that the customer is always right? Do you act as a “service cheerleader” in your organization? This time in which we live has been called “The Age of The Customer.” Do you agree? Would your customer service choices support that statement?

 

No matter. Everyone has their own idea about customers and their desires and just what it is that they deserve. Some successful business people don’t even like their customers! And, that’s okay too. It’s much more important that you “know” your customer rather than simply showing that you “like” your customer. Like all relationships, the secret is understanding. Do you know what your customers need and when they need it? Do you know the key motivating factors in providing comprehensive service? Most importantly, do you know what a particular customer means to you and your business?

 

The Prize Eludes Us

 

With all of the attention given over to “continuous improvement” and “creating devoted customers” in the past decade it would seem that customer satisfaction levels would be near their all-time peaks. Well, they’re not. In fact, many companies still struggle with providing the most basic elements of great service as identified by survey after survey. Service shortcomings, like these, are still pervasive:

 

• can’t get through on the telephone/on hold too long
• can’t get the right person for the right kind of help
• can’t avoid repeating yourself needlessly to rotating reps
• can’t get the right person with the ability to answer your question
• can’t find companies who do not suffer from slow or inoperable computers
• can’t avoid pitches for other products and services
• can’t find flexible people who might consider a flexible resolution
• can’t find personable, polite people with professional communication skills

 

With companies desperately seeking to differentiate themselves somehow from their competition, you would think the development of an extraordinary service team would be everyone’s prime objective. Apparently not. This is wonderful news for someone determined to gain a significant competitive advantage in the marketplace. Can you turn the negatives listed above into positives?

 

 

 

Decision-Making 101

 

The odds are good that you have been in the position of making a difficult decision about a customer. Perhaps they are just asking for too much. Maybe they want to return something for the 5^th time or they’ve placed yet another request for free samples or they want that one-time special price again and again. You’re in a corner now, aren’t you? You tell everyone that you’re service oriented but you can’t keep giving things away. At the same time, you don’t want to offend your customer or appear inflexible. What do you do?

 

Too often, we look at the customer’s recent sales figures for guidance. Have they bought a lot this month? … This quarter? … This year? If they are a big customer, we usually try to accommodate them. If they are really small, well, good luck to them! And … if they are somewhere in the middle … well, good luck to you! Is this a valid way to drive your decision-making? Would you think it fair if you were that mid-sized customer with a legitimate problem? Does judging a customer “in the present tense” take enough facts into consideration? Maybe not. Could a less-than-ideal service response send this customer packing? It might.

 

A different way to look at a situation like this involves a broader view of the customer’s meaning to your business. It also means you must remind yourself constantly of the disparity in costs between retaining an existing customer (relatively small) and acquiring a new customer (far more costly!).

 

Try not to look at an “extraordinary service request” (such as “If you want to keep me as a customer you’ll just have to get someone here on Saturday!” in the context of a particular time period. Instead, try to get comfortable with a different, more holistic philosophy-- The Lifetime Value of a Customer.

 

The Perpetual Customer

 

Developing a customer’s “whole picture” means considering their perpetual value. What have they been (or will they be) worth over their expected “life” as your customer? If they are an older customer, what have their total sales been since they began with you? Or, are they a recently acquired customer with some big potential? Might they buy products or services from you for 5 years? Maybe they will stick with you for 10 years … or 20 years. The longer you can hold them, the greater their lifetime value. With your “perpetual eyeglasses” on you may find many more 6-figure customers than you would have ever predicted! Of course, don’t make the mistake of turning an unprofitable customer into an extremely loyal customer – that’s a torturous combination.

 

The Million Dollar Favor

 

You could never imagine turning down a reasonable request from a million dollar customer, could you? How foolish that would be … but it happens more than you can imagine. Even small or mid-sized businesses have million dollar customers when you view their lifetime value. A low maintenance customer buying $50,000 annually for twenty years is a “prize” you just can’t let get away! Or a new customer with the potential to open additional markets just might be that million-dollar customer.

 

 

Build this viewpoint into your thinking. When you’re making a service decision, get the whole picture. You will find yourself making more of those “extraordinary service efforts” with the right customers – those who have paid for the privilege with either yesterday’s or tomorrow’s dollars. Simply put, when it comes to crafting your service policies thinking “long-term” leads to better choices than thinking short-term.

 

Building A Complete Service Profile

 

There is no single method, which can guarantee a wise decision. Certainly, there is as much “instinct” involved as mathematics. There are other elements in any customer’s profile, which should also be plugged into the service equation. Are they a profitable account? Do they recognize your value and allow you to make a fair return on your investment? How well do they maintain your payment terms? Are they prompt or does every payment feel like a struggle? Are they a source of quality referrals (a huge plus!)? Do they make you feel good about doing business with them or do you wince every time you hear their name? Do you find them to be a source of positive energy? Are they a trusted ally and not just a customer?

 

These questions help to accurately describe the real world value of any customer to you. Together, along with your own business acumen and intuition, will help you and your staff, to make your daily service “investments” wisely.

 

 

 

 

Traci Totino, PhD