The Lifetime Value of a Customer

It is human nature to need to feel validated by “being right”, at least sometimes; however, in business it’s best to temper this need and aim to communicate until an understanding is reached. Most misunderstandings arise from the fact that there is always more than one way to perceive information. There is not right or wrong in the world of customer service; there is only understanding that must be reached.

Example 1
I went to the Whole Foods Market to order a case of Poland Spring sparkling water. As the customer service representative picked up the phone and spoke to someone about my order, she kept leaving out the “sparkling” part. So, when she wrote the order down and still left out the “sparkling” part the conversation was as follows:

Me: Don’t forget the ‘sparkling’ because I do not want a case of plain water.

Rep: Well then, it’s not ‘spring’ water.

Me: ‘Poland Spring’ is the brand and ‘sparkling’ is the type of water that I want.

Rep: Oh, now it makes sense.

SEE: Marketing Math: What's a New Customer Really Worth?

Example 2
I have several cafés that I enjoy, and I tend to visit them in spurts. I recently visited the Cosi near my home after a lull of at least 3 months. I ordered my favorite Cobb salad and gave the cashier my rewards card. After processing the transaction the cashier gave me a little slip that detailed my reward points:

Beverage Credits – 1

Entrée Credits – 4

I had not been to Cosi’s for some time, and my initial thought was, “I have 1 free beverage and 4 free entrees,” based on how the information was presented on the receipt. That was too good to be true; so I inquired about the credits:

Me: Can you refresh my memory, what do the reward points mean?

Rep: After your tenth reward you get one entrée for free.

Me: Oh! Thank you.

The Role of the Customer RepThe Representative remained calm in each encounter. They did not become notably frustrated or annoyed. They listened or they talked until an understanding was reached. When customer service representatives are stable, consistent, and focused on meeting the customer’s needs it reduces customer-employee friction. It does not eliminate the possibility of friction; however, it significantly reduces the likelihood. The demeanor of the representatives kept me, the customer, from becoming irritated and enabled me, the customer, to have my needs met. Score one for Whole Foods and Cosi.

SEE: Customer Profitability and Lifetime Value

The Implicit Value
It costs less to market to and to maintain loyal customers than to obtain new customers. With current customers, you have already paid the acquisition cost; furthermore, happy customers are reluctant to change vendors due to switching costs. Current customers are also more profitable. A 5% increase in retention can double profits for most companies. Also, over the relationship lifetime, loyal customers contribute up to ten times as much income as much as the average customer.

Although acquiring new customers is certainly an important consideration, maintaining current loyal customers is arguably even more important. I do enjoy my rewards, credits, and bonus points.

About the Author

Maisha Smart, MBA founded Finance and Marketing to help small businesses excel, by bridging the gap between finance and marketing processes. Some of her favorite activities include fine arts, a good debate, and social engagement.

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