Customer Value Management - Homebase

TASK 1

(A) (P1) Various components that enable organization to determine customer lifetime value

Customers are the lifeblood of firm that are valuable to business unit and contribute in enhancing its value in the market. Each firm aims to satisfy its consumers and make them loyal towards the brand (Martinsuo and Killen, 2014). For that, they offer these consumers high quality products and services so that they will be loyal towards the brand and experience its services for longer duration. In the competitive environment, companies have to face high issues in retaining consumers in the firm for longer duration. Customer lifetime value is considered as tool that is used by most of the organizations to measure their net profit through specific group of people. It helps in analysing the importance of customers to business. By calculating CLV, entity makes strategies and arrange their monitory resources so that it can generate profit and become able to meet with the needs of these valuable consumers.

In order to calculate CLV, companies have to deduct cost of services from profit gained by entity (Nagaoka and et.al., 2016). This cost includes expenditure made by the business unit for providing services to buyers and meeting with their needs. By calculating these expenditure, entity can examine its overall cost.

In order to calculate CLV for Homebase Company, various things are taken into consideration. These are explained as below:

• Cohort analysis: It takes into consideration the necessary changes that have been implemented in business unit over a period of time (Stark, 2015). By this way, Homebase company can measure the effectiveness of changes in terms of whether these modifications have met with the needs of consumers or not. It includes seasonality, market changes, etc.
• Individualized CLV: In this, Homebase Company determines the value created by individual customers in business through various channels (Verhoef and Lemon, 2013). It includes social media, digital marketing, etc.
• Average revenues' calculation per user: It is another component that helps in determining profit generated through particular customer (Xu, Peak and Prybutok, 2015).

(b) (P2) Benefits of customer lifetime value

Customer lifetime value plays a significant role in the organisation. Through CLV, Homebase can get many benefits and improve its operational efficiency to a great extent. Benefits of this approach are explained as below:

• CLV approach is an effective tool that helps in determining actual assets of Homebase. These assets' identification helps organization in identifying its own financial position in market. By this way, it can make strategies to utilize these assets in an effective manner (Rihova, 2015).
• CLV is helpful in segmenting customers as per their value in business. Each person has different value in firm. There are some customers that create high value to entity. Through this approach, Homebase can make customer segmentation and identify its potential buyers (Kim, 2015).
• CLV is an effective process that assists in resolving issues and minimizing complaints from customers. If entity knows about potential customers then it will try to offer them quality services so that they will become loyal towards the brand. Thus, complains get solved soon and it makes them loyal towards the entity (Ramaswami, 2016).
• Customer lifetime value is beneficial in sustaining customers in the brand for longer duration. It always tries to satisfy consumers by offering them quality products and services. By this way, Homebase firm can retain its loyal consumers in the firm for longer duration (Kotler, 2017).
• CLV is beneficial for organization in enhancing profitability of company. It always tries to hold customers who create value to the business so that these people will spend money in the firm. This helps in generating high revenue in the corporation.

(c) (P3) Factors that influence CLV

There are various factors that affect the customer lifetime value. All these factors highly affect overall operations of Homebase Company as well (Verhoef, 2015). Description of these elements are as below maintained:

Consumer purchasing

It is one of the most important element that influence CLV of Homebase Company. If purchasing power of customers are changing then it will affect overall lifetime value of buyers. Each individual buys products from the company that offers them satisfactory services as per their requirements (Armstrong, 2015). If person is dissatisfied with the firm then individual will not spend their money in entity. In such condition Homebase is required to provide quality services to buyers so that they buy products from the firm frequently. This model helps in determine purchasing power of each customers.

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Company services

If services of the company are not good then it impacts on operational efficiency of the firm. In such condition customers do not take interest in products of the firm. This impacts CLV to great extent (Definition of 'Customer Lifetime Value, 2018).

Loyalty of customers

It is considered as another most important factor that influence overall customer lifetime value in Homebase. If company has loyal customers then this will support entity in enhancing its productivity and generating high revenues. But if consumers are not loyal then they can move easily towards other competitors. In such condition overall CLV of Homebase can get influenced to great extent (Leroi-Werelds and et.al, 2014). Loyalty of the clients are highly depended upon brand image of firm, market share, quality of products. If entity is providing high quality services to the consumers and resolving their complaint soon n then it can make the person loyal towards the brand. By this way these people will frequently buy products from Homebase which will generate good revenues to the entity.

(d) (M1) Practical application of concept of CLV

Customer lifetime value can be defined as prediction that is done through collecting necessary information about customers (Martinsuo and Killen, 2014). By this way, entity gets to know the value that is generated in the firm by this client. It supports firm in generating high revenues and increasing its market share to great extent.