In “Luxury brands go over the top to connect with wealthy clients” published by the Los Angeles Times, my breath was taken away at the various examples of cusotmer marketing to the wealthy. From dinner parties suspended in mid-air in Toronto to flying MiG jets, companies that depend on wealthy buyers are getting serious with their marketing and customer appreciation events. The following excerpt highlights the forecast for these goods.
“Bain predicts that in 2009 the so-called luxury market — brands sold in upscale department stores and advertised in high-end fashion magazines — will face its first recession in six years, with a 7% decline in global sales.” – Los Angeles Times Reporting
The Bottom Line:
Shoring up you best customers in troubling times is always a smart move and should only be gated by the future value of those customers to your business. The measurement of customer lifetime value (CLV) is a hot topic but few companies have mastered the use of it. Some critical components of CLV:
- Acquisition cost – the cost to acquire a single customer (e.g. Direct mail)
- Retention rate – the rate that a business retains its customers (e.g. 70% of customers repeat purchase)
- Retention cost – the cost to keep your customers (e.g. MiG flights, suspended dinner parties in Toronto, etc.)
- Periodic revenue – the revenue that your can expect from a segment of customers (e.g. based on history customers that make over $250K per year spend on average $500 per month)
- Profit margin – this is the % of Periodic revenue that is profit
- Discount rate – this is a more complex component, but you can safely think of it as the risk factor of future cash flow (e.g. a dollar today is worth a dollar, but a dollar that I will not get until next year is worth less because I have to wait to get it)
Please remember that the measure of CLV by its nature is their entire lifetime value not just the future value of them. It is important to understand where your customers are in their lifecycle to understand what the future value is vs. the historic value you have already benefited from. This is not to say that customer value is static and never increases, but you should take this into account before making marketing decisions.