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Class 4 Intro to CLV

M370 Fall 2012

John Talbott

on 30 August 2012

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Transcript of Class 4 Intro to CLV

Today's Class Key points from Class Class 4 Customer Lifetime Value Funny Commercial Customer Obsession Think Long Term Invent Every Day is Day 1 M370 Fall 2012 “Powerful databases and electronic data networks are allowing companies to collect concise information about customers”.
“The ultimate goal is to develop highly committed customers who not only make repeat purchases and generate continual revenue streams, but also require minimal maintenance along the way”. From: Customer Profitability and Lifetime Value What makes a company valuable? * More than 900 million active users
* 50% of our active users log on to Facebook in any given day
* Average user has 130 friends
* People spend over 700 billion minutes per month on Facebook
Facebooks Statistics Page "Facebook Takes That $200 Million Investment From The Russians (Digital Sky) At A $10 Billion Valuation"

by Erick Schonfeld on May 26, 2009 How did Digital Sky Determine that Face book was worth 10$ Billion?
How did Goldman later place a $50 billion valuation on Facebook?
Why did investors place the value of the company stock at $43 + a share at the IPO? Market Cap? Multiple of Ebitda? Customers/Users 900,000,000 x 3$ of Profitability/User
=$2,700,000,000 of ebit at 15X is about $40,000,000,000 Valuation Think about this: "A company's value is the sum of the discounted cash contribution of its current and future customers" Database information on customer purchase behavior is predictive of future behavior.
Create customer segments based on this purchase behavior as soon as customer type can be identified.
Determine profitability of these segments
Append other data about prospective customers to this internal data to target the best potential customers for acquisition.
Manage the acquisition and retention of these segments independently to maximize results. CLV Conceptual Overview Acquistion Costs:

The average cost of converting a potential customer to a transacting customer. Catalog Retailer
Internet Retailer Impression: The ad is served to a potential customer Click-Thru: The ad is clicked and the potential customer is linked to the advertisers site Conversion: The potential customer transacts at the advertiser's site Cost per catalog: The total cost of printing and mailing a catalog to a potential customer Response rate: The percentage of customers that buy from a mailing Are these costs to0 high? Breakeven Analysis from Customer Profitablity and Lifetime value. AC $17.5 from Catalog Example CLV uses Discounted Cash Flow Occasional and Frequent Buyers are Worth Keeping Firing Customers (Best Buy)
Segmenting acquired customers and Marketing based on profitability.
Looking at other characteristics to lower prospect cost and attract better customers. Implications for Marketing Lecture Notes Have a great Week! http://www.managementconsultingnews.com/interviews/peppers_rogers_interview.php Read the article: Market Segmentation/Target Market Selection and Positioning. Also, Read Chapter 4 in your Course Pack

Download the CLV problems document that I have uploaded to Resources/Homework Assignment
Look at the simple CLTV spreadsheet I have uploaded to Resources/Supplemental Materials
Try to work the problems. We will work in class on CLV problems on Tuesday. Assignment for Next Class 5 3 Jan 11:
Huge news for Facebook: Goldman Sachs is investing $450 million in the company at a $50 billion valuation, the New York Times' Dealbook reports. (Google PE is 19) Estimate AC = $17.50 AC = $17.50
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