Lifetime Value of Customer

Rajeev Chaba, President & Managing Director, General Motors India Pvt Ltd

The reality of our lives is that today customers are becoming more and more difficult to please and retain. It wasn't so 10 years ago. Back then, we didn't have a deluge of media, market place options and choices of the kinds available today.

The markets will soon plateau. And spending will continue to rise. Tomorrow, we will not be selling more of the same car. We will be selling more of the upgrade of the same car.

Marketing today requires, rather demands, a change in orientation. When was the last time you felt 'obliged' to buy a company's product? Or do you remember the last time you felt 'overtly loyal' to a brand? But then, it is very likely, you don't even remember a company showed compassion and understanding towards you.

The change in orientation is from 'let's add more customers to the base' to 'let's derive Customer Lifetime Value'.

Let me illustrate what Customer Lifetime Value is, using an example from the automobile industry:

That's Rs. 46.5 lakh on purchases of cars alone.

You are:	What you do:	How much you spend:
25 years old	Buy your 1st car	2,50,000
28 years old	Buy your 2nd car	4,50,000
32 years old	Buy your 3rd car	7,50,000
37 years old	Buy your 4th car	12,00,000
45 years old	Buy your 5th car	20,00,000

 

Rajeev Chaba Rajeev Chaba took over as the President & Managing Director of General Motors India on 1st June 2005. Before his appointment as President & Managing Director, Chaba has served GM India as Chief Operating Officer, responsible for the day to day operations of the company. Prior to this, he served as Director, Sales & Marketing, GM Japan where he facilitated restructuring of the GM business. Rajeev Chaba joined General Motors India in. 1995 as National Marketing Manager and handled various portfolios in different capacities including VP- Marketing, Sales and Aftersales at GM India. He has worked in the automobile industry for over 14 years both in India and abroad. Chaba has also represented General Motors in various industry and trade associations on a number of occasions. Chaba holds a bachelor's degree in engineering and a master's degree in business administration from IIM, Bangalore.

 
If we top that up with money that a customer will spend on servicing and maintaining his or her vehicle, and car purchase decisions he or she is likely to influence over a lifetime, we are looking at a figure that is close to Rs. 75lakh.

The choice is ours - is it one sale we are interested in today, or is it multiple sales over the customers' lifetimes.

Buying power is going up. And it will continue to keep going up. As they say, the only thing that is permanent is change. The challenge is in farming the customer, retaining him and growing him. I'm sure you will agree that is easier said than done.

 
But it is truly quite simple - like parenting a child really.

Doing that is all about Expectations and Surprises. Marketing today is all about matching expectations and delivering surprises. The result is incremental sales.

We don't need to push consumers, we don't need to redesign our service offerings, all we do is change our (marketing) orientation.

It can also be viewed as a fundamental shift in emphasis from 'winning consumers' to 'winning the best consumers and keeping and developing them long term'. Or the shift in focus from 'share of market' to 'share of consumer'. or from 'acquisition & trial' to 'relationship management'. It all means the same thing any which way you look at it.

The formula is really quite simple: (a) build a strong promise around your brand (b) make the promise come alive with occasions and offers (c) keep the dialogue alive and (d) speak the same language around all touch points.

Application of this formula forms the basis for the next step - segmentation of customers by Value and Needs. Potential Value helps determine who our most valuable customers are, which services to offer them and how much to invest in such services. A 'good' understanding of customer needs on the other hand will help prevent degeneration of retention strategies into a mass of low-value, undifferentiated service offerings. The knowledge gained by this sort of a double-edged segmentation will help forge meaningful relationships with customers as these will be based on offerings that customers will genuinely value.

The result - a consistently high a quality brand experience. What more does one need in these rapidly changing times? Long live Customer Lifetime Value!