Business Finance Homework Help

150-200 word response with APA Citation to the below:

In this week’s reading, we learn the value of Customer Lifetime Value (CLV) and how it aids businesses to look forward rather than past like in the metric customer profit. Hubspot defines CLV as “the metric that indicated the total revenue a business can reasonably expect from a single customer account throughout the business relationship” (Fontanella, 2021). The value of CLV comes from the ability to segment customers as a business will be able to define its most valuable customers. As we know, it cost more to acquire new customers, so focusing marketing spend towards the loyal customer will always bring them back. A company that has a firm understanding of its CLV is Starbucks.

Starbucks is by far the most popular coffee house for your go-to coffee fix. With nearly 15,000 locations, Starbucks holds loyal customers who visit their shops 4-5 times a week. What’s interesting is Starbucks is not worried that they are selling $5 coffee but “acquiring a $14k customer”. That number is correct! Starbucks CLV is $14,099, according to Kissmetrics. Starbucks isn’t paying $14k for every customer, but using the 80-20 rule, “the rule of thumb is that 80% of your sales come from 20% of your customer” (Kucheriavy, How to Calculate Customer Lifetime Value (CLV) to Market to High Value Customers). In support, our textbook goes on to say, ” if you view a customer relationship as an asset of the firm, CLV would represent the dollar value of that asset” (Venkatesan et al., 2015). Starbucks has marketed to their all-star customers through their rewards system on the app, email, and social media. It’s within their rewards system where customers become hooked to earn as many stars to redeem rewards.

Overall, CLV is a great metric that businesses should incorporate to understand how their marketing spend is connected to retention. This gives a business the correct understanding of how much they should be putting towards customer acquisition and marketing spend.

References

Fontanella, C. (2021, May 6). How to Calculate Customer Lifetime Value. HubSpot Blog. https://blog.hubspot.com/service/how-to-calculate-customer-lifetime-value.

Kucheriavy, A. (n.d.). How to Calculate Customer Lifetime Value (CLV) to Market to High Value Customers. Intechnic. https://www.intechnic.com/blog/how-to-calculate-customer-lifetime-value-clv-to-market-to-high-value-customers/#:~:text=Starbucks%20calculated%20that%20the%20average,you%20look%20at%20your%20marketing.

Venkatesan, R., Farris, P., & Wilcox, R. T. (2015). Cutting-edge marketing analytics: Real World Cases and Data Sets for Hands On Learning. Pearson Education.