This guest blog post is by Eli Jones, Ph.D. and Co-Author, Selling ASAP: Art, Science, Agility, Performance. Visit www.sellingasap.com to learn more.
Salespeople face the task of keeping customers satisfied while increasing the value of customers to the sales organization. In recent years, customer lifetime value (CLV) has become a handy method for achieving those goals. Using mathematical equations to determine CLV is now part of the science of selling. At some point, salespeople may require a sophisticated set of analytical capabilities in order to predict customer needs accurately and interact with customers more profitably. Essentially, however, professional selling today requires taking a long-term view of customer relationships. Here are the four facets of lifetime customer relationships:
- Product holdings – the products a customer has purchased and the products the customer currently has on hand.
- Product use – how the customer uses the product and what value the customer derives from using it.
- Contacts – the nature of the sales organization and the salesperson's contacts with the decision-making unit of a client company over time.
- Events – occurrences in the life of the customer (e.g., birth of a child, new business opportunities, change in competitive activity, etc.).
When salespeople collect and use information about these four facets of customer lifetime relationships, they are able to answer questions such as the following: How many customers have purchased product A? How many customers have purchased it more than once? What is the frequency of contact with customers? Which customers are most profitable? What events occurred prior to losing a customer? What customers purchase which products? What events typically precede purchases?
When salespeople can answer questions such as these, they put themselves in a better position to create, maintain, and grow lifetime relationships with customers. A key part of building customer relationships is, simply stated, truly knowing your customers. You must think of customers as partners in collaborative relationships designed for maximizing value to both the customer and you and your organization over the long term. Thus, you must develop "thoughtware" about your customers. Thoughtware represents the thinking process salespeople use as they continuously learn about their customers. For example, customers are often grouped by types of relationships, which provides the following advantages:
- Identification of significant events in the life of the customer.
- Avoidance of unneeded duplication of effort.
- Knowledge of loyalty patterns based on the type of relationship established with individual customers.
- Identification of cross-sell opportunities (i.e., finding additional products or services that can provide added value to current customers).
- Identification of up-sell opportunities (i.e., working with customers to upgrade existing products or services for the purpose of providing added customer value and solidifying relationships).
Customer lifetime value is not just a forecasting technique or a software package, but a way of thinking about and doing business with customers that emphasizes up-front preparation and profitable long-term relationships. Such long-term relationships are less costly than those formed under the traditional model, which emphasizes single transactions with customers and closing sales.
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