Do customers become more valuable over time? In this exercise, you consider whether a customer is likely to increase his/her relationship with a firm over time, by evaluating likelihood of them progressing through a relationship life-cycle path.
Let’s consider the possible relationship life-cycle path of an average customer of a phone company, which also markets a range of home Internet and entertainment products. Your task here is to evaluate whether this progression is likely or rare for most customers.
• Customer connects mobile phone with the phone carrier
• Over time, customer becomes a heavy user of the phone
• Six months later, customer connects home internet
• 12 months later, customer gets cable TV at home
• After a few months, customer knows service and never phones the call center
• They now get statements/bills online (no direct mail costs)
• And they now also pay bills automatically from their bank account
• Over time customer starts acting as an opinion leader and refers 2-3 people per year to the firm
• Two years later, customer stays with the firm, despite a 5% price increase, as they are happy with the service and relationship
- How likely do you think it is the average customer to progress through the various stages as outlined above? (Assess each step on a scale of: most customers, some customers, or only a few customers.)
- Given your answer to Q1, do you think that the customer lifetime value calculation should include an allowance for an increase in customer profit per year?
- Given the possible progression outline, how important do you think it is the firms to market/cross sell products to their existing customers or will these changes simply happen automatically?
- Which of the above options and progressions do you think would be most profitable for the firm?