Growth is often associated with acquiring more and more customers but increasing customer value has become much more significant. The basic principle of successful growth is the ability to acquire and retain customers and develop a relationship with them.
This can be achieved so that you will understand your customers. You will learn more about their risk, their product preference and preferred communication channels, standard purchases, family options and complaints. Based on this information, we determine a lifetime value customer strategy and how to develop this valuable commodity more.
What is customer value?
How can you recognize the value of the customer to determine how profitable he can be? This task may appear to be a simple one, though the solution is, in most cases, rather complex. One definition of customer value is via financial turnover. All products have varying profitability (some goods are even subsidized). However, great customers receive higher discounts so sometimes the best customers actually generate a loss.
The fact remains that determining the costs of a client is a complicated task as we must calculate the cost of servicing the product, running the administrative departments etc. The problem is that the cost of information is often in an aggregated form and determining the proportion of costs of individual clients can be troublesome; profitability may depend on the methodology used and the proportion of fixed costs.
Building on the future value of the customer
It is better to focus on the concept of future customer value as we estimate the potential of a client based on their history, current value, the likelihood of retirement, and market trends.
Estimating the „wallet share of a client“, the products and services you offer that are in the client's wallet, is an important input for future value. You may have a client who only has their building savings and you can assume that the competition controls other products, such as a current savings account. Knowing the overall customer wallet share and what the competition occupies is crucial for defining how you approach your customers.
Calculating the current and future values of the client allows you to choose a differentiated strategy which is a more individual approach to the client. It is not an isolated example when the top 10% of customers account for over 40 % of the profit and 40 % of customers represent less than 10 % of your profits. Establishing a strategy based on present value would be a mistake. If the present value of the customer is low, but the potential is high, behavioral strategies must be different from a customer whose current and future value is low.
You may offer „student products“ despite the fact that the current value of the student is quite low, but may one day be high. Moving high-potential customers to better groups would be the logical choice.
When determining the strategy of gradually shifting customers to higher client groups, don’t forget to maximize efforts at key moments in a client's life. Moments such as graduation when the client finds himself in a new situation but needs to maintain a lifestyle in an appropriate manner.
It is crucial to determine the client's risk, both in terms of the probability of departure (churn prediction or attrition risk analysis), probability of default (credit scoring) or the likelihood of fraud (fraud detection). To determine client risk we can use data mining techniques based on historical data about clients who have closed their accounts, defaulted, committed fraud, and rely on patterns of behavior to assess the likelihood of these risks.
Are you interested in this approach? Let us know! We can offer extensive experience and know-how in the field of Customer Intelligence. We ensure the accuracy of the input data, as we have experienced consultants in the field of integration and data cleaning.