Post on 07-Apr-2015
transcript
8-Dec-10 - 2 -
Presentation Outline Impact of Problem on Customer Loyalty Customer Loyalty & Improvement initiative Revenue loss of customer goodwill Customer Lifetime Value
Definition Calculation Model Example
Customer Goodwill Simulator Estimated Customer Equity Return on Quality (ROQ) Shareholder Value
8-Dec-10 - 3 -
Impact of Problem on Customer LoyaltyTARP Research Finding,
Note,Customer Loyalty will drop by about 55% ( Financial Services ) if the customer encountered a problem.
(TARP; formerly known as Technical Assistance Research Programs, aresearch and consulting firm established at Harvard in 1971)
Selling Quality to the CFO,March 2000http://www.tarp.com/research2.asp
8-Dec-10 - 4 -
Financial Services 100 Customers Encountering
problems, 45 of them will probablyrepurchase the next time and theother 55 will leave.
If 95 customers encounteringproblems,=> 45/100 X 95 = 42.75 customers will probably repurchase the next time.
Impact of Problem on Customer Loyalty ( continue )
8-Dec-10 - 5 -
Customer Loyalty & Improvement initiative
Improving Error Rate from 5.67% to 1.71%will expected to gained 1.15% of customer(73.50% - 72.36% = 1.15%)
8-Dec-10 - 6 -
Improving Error Rate from 5.67% to 1.71% will expect
to gain 1.15%
Total Customer Gained = 1.15% X 80,000
= 919
Consider CLV for Non
Motor Insurance is, CLV = RM 290.41
Potential Revenue Gained = CLV X 919 = RM 266,805
Required Data;• Non Motor Customer ( base on 2004 figure) = 80,000
Customer Lifetime Value (CLV)
Customer Loyalty & Improvement initiative
8-Dec-10 - 7 -
No of Customer will leave,Suppose 30% of projected customerexperiencing problem and the other 70%experiencing no problem.1. Total Customer leave (no problem),
= 26%X (70%X80,000)= 14,000
2. Total Customer leave (problem)= 55% X (30% X 80,000)= 13,200
Lost Of Customer Goodwill= (14,000 + 13,200) X CLV= 27,200 X RM 290.41= RM 7,899,152
Revenue loss of customer goodwill due to lost through service quality errors.
Financial Services
8-Dec-10 - 8 -
Customer Lifetime Value
“Customer Lifetime Value is usually definedas the total net income a company can expectfrom a customer.”
Source : Novo, J,2001,Maximizing Marketing ROI with Customer Behavior Analysis, http://www.drilling-down.com
Definition Calculation Model Examples
8-Dec-10 - 9 -
Customer Lifetime Value
]d)(1[ itit
T
0tit
tSF π∑ +
=
−
LVi = Lifetime value of customer it = Time period.T = Length of the planning horizon.d = Discount factorFit = Expected frequency of customer i’s purchases in the product
category per time period t.Sit = Expected share of customer i’s wallet for this brand in time tπit = Average contribution from a purchase by individual i in time t.
Definition Calculation Model Examples
8-Dec-10 - 10 -
Customer Lifetime Value
Definition Calculation Model Examples
Customer 1
The probabilities of purchase for customer i (ifshe/he purchased from MAA last time) this yearare 0.8 for MAA, 0.1 for X and 0.1 for Y
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Customer Lifetime Value
t = 2 yearsCustomer 1 probabilities of purchase (MAA) for 2 years from now are,(0.8X0.8)+(0.1X0.3)+(0.1X0.1)=0.68
t = 3 yearsCustomer 1 probabilities of purchase (MAA) for 3 years from now are,(0.8X0.8X0.8)+(0.1X0.3X0.8)+(0.1X0.1X0.8)=0.544
Definition Calculation Model MAA Examples
8-Dec-10 - 12 -
Customer 1 Lifetime Value to MAA Required Data;• Discount Rate = 10%• Contribution Profit = $200.00• Time Period = 3 Years
Definition Calculation Model Examples
Customer 1 Lifetime Value Year 1
Customer 1 Lifetime Value Year 2
CLVY1 = $200 X 0.8 = $160.00
Customer 1 Lifetime Value Year 3
CLVY2 = CLVY1 + ($200 X 0.68)(1+0.10)-2 = $160 + $112.34 = $272.34
CLVY3 = CLVY2 + ($200 X 0.544)(1+0.10)-3=$272.34 + $81.74 =$354.08
Therefore,Customer 1 Lifetime Value = $354.08
8-Dec-10 - 13 -
Customer Goodwill Simulator
Customer 1 Customer 2 Customer 3
Required Data;• Discount Rate = 10%• Contribution Profit = $200.00• Time Period = 3 Years
Customer 1 Lifetime Value Customer 2 Lifetime Value Customer 3 Lifetime ValueYear 1 $140.00Year 2 $228.43Year 3 $284.70
Year 1 $120.00Year 2 $192.73Year 3 $232.40
Customer Lifetime ValueYear 1 Year 2 Year 3
Customer 1 $160.00 $272.40 $354.14Customer 2 $140.00 $228.43 $284.70Customer 3 $120.00 $192.73 $232.40
Average CLTV $140.00 $231.18 $290.41
8-Dec-10 - 14 -
MAA’s Estimated Customer Equity
Definition Calculation Model Examples
CLV to Comp = 41.2903
3
RMCLVi
n
CLVii
n
i ==∑∑
MAA’s Estimated Customer Equity
= RM 290.41 X 80,000
= RM 23,233,058
8-Dec-10 - 15 -
Return On Quality
• Calculated Return on Quality is 59.2%, indicatingthat the improvement expenditure is profitable.
Consider,Discounted Improvement Expenditure = RM 10.2 million$ Improvement in Customer Equity = RM 25 million
% R O Q = X 100 = 59.2%(25 - 10.2)25