Where, t = time of the cash flow N = total customer lifetime r = discount rate
Cf = net cash flow (the profit) at time t (The initial cost of acquiring a customer would be a negative profit at time 0.)
NPV can be calculated easily on most financial calculators or by using one of the calculators available on the Internet, such as the one found at http://www.investopedia.com/calcuiator/ NetPresentValue.aspx. For more discussion of the financial and quantitative implications of marketing decisions, see Appendix 2: Marketing by the Numbers.
1. Assume that a trade customer spends an average of $150 a week and that the retailer earns a five percent margin. Calculate the customer lifetime value if this shopper remains loyal over a 10-year life span, assuming a five percent annual interest rate and no initial cost to acquire the customer.
2. Discuss how a business can increase a customer's lifetime value.
Few brands engender such intense loyalty as that found in the hearts of Harley-Davidson owners. Long ago, the folks at the renowned motorcycle maker realized that the best way to create lasting relationships with its customers was to understand them on their own terms. The company spends a great deal of time and money in pursuit of that goal. It wants to know who its customers are, how they think and feel, and why they buy a Harley. That customer-centric strategy has helped build Harley-Davidson into a multibillion-dollar company with the largest company-sponsored owner's group in the world.
Harley-Davidson has learned that it sells much more than motorcycles. The company sells a feeling of independence, individualism, and freedom. These strong emotional connections have made Harley-Davidson ownership much more of a lifestyle than merely a product consumption experience. To support that lifestyle, Harley-Davidson recognizes that its most important marketing tool is the network of individuals who ride Harleys. For this reason, Harley-Davidson engages its customer base through company-sponsored travel adventures, events, and other things, such as clothes and accessories both for riders and for those who simply like to associate with the brand.
After viewing the video featuring Harley-Davidson, answer the following questions about managing profitable customer relationships:
1. How does Harley-Davidson build long-term customer relationships?
2. What is Harley-Davidson's value proposition?
3. Relate the concept of customer equity to Harley-Davidson. How does Harley-Davidson's strategy focus on the right relationships with the right customers?
In the late 1990s, It was all about the dot-com. While venture capital poured into the high-tech sector and the stock prices of dot-com start-ups rose rapidly, the performance of traditional companies paled in comparison. That era seemed like a bad time to start a chain of brick-and-mortar mall stores selling stuffed animals. Indeed, when Maxine Clark founded Build-A-Bear Workshop in 1996, many critics thought that she was making a poor business decision.
But with Its first decade of doing business behind it, the U.S.-based specialist in customizable teddy bears now has more cheerleaders than naysayers. In the last few years, it has won numerous awards, including being named one of the five hottest retailers by one retail consultancy. The company hit number 25 on BusinessWeek's Hot Growth list of fast-expanding small companies. And founder and CEO Maxine Clark won Fast Company's Customer-Centered Leader Award. How does a small start-up company achieve such accolades?
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