Focus on Customer Lifetime ValueOften firms concentrate on getting new customers, but serving existing customers can be a much more successful strategy.  This is the concept of customer lifetime value — that customers should represent sale after sale, not just a single sale.  A great example of a firm maximizing customer lifetime value is Apple.

All the products developed by Apple fit a particular type of consumer who wants products that are innovative, stylish, and easy to use. By focusing on creating a community of satisfied Apple users, Apple sells them first a computer, then an iPod and iPhone, or a tablet.

What is Customer Lifetime Value?

Customer lifetime value is a function of a customer’s loyalty to your brand.

You can calculate the value of different classes of customers by assessing the marketing costs associated with attracting and maintaining a particular class of customer against the sales you’ll make to that customer.  I wrote a post giving step-by-step instructions for calculating customer lifetime value you can use to determine which customers to focus on.

Why Use Customer Lifetime Value?

Customer lifetime value helps you maximize your profits.  It shows you which customers buy more of your products and services.  It also shows you which customers are more expensive to serve.  For instance, many businesses have a class of consumers who are more expensive to serve — maybe they make frequent returns or maybe they  expect free services to satisfy their frequent complaints.  Not only do these customers represent higher costs, they have the potential to infect other customers.

Customer Lifetime Value in the Age of Social Media

Certainly, customer lifetime value underpins the success of social media.  Social media marketing allows businesses to build the community that builds brand loyalty and drives customer lifetime value.  But, customers create additional value in social media.  That means firms must modify their calculations of customer lifetime value to reflect additional value created above and beyond actual sales of the product.

Communication

In social media, customers create additional value not only through buying additional products, but through spreading the brand message through their social networks.

Support

Also, customers create value when they provide support the brand.  By answering questions about the use of the product, suggesting additional usage for the product, and other types of support for people who own the product or are interested in buying the product create value for the brand.

How Social Media Affects Business Strategy

Because customer lifetime value is affected by both sales to certain customers and their ability to impact the purchases of others, a different assessment of customer lifetime value.  This is why brands seek those influential about their products — they recognize the value of these recommendations.