V Kumar (the editor of the Journal of Marketing) and student Sarang Sunder have undertaken a review of the use, and potential use, of Customer Lifetime Value (CLV) in the Consumer Packaged Goods (CPG) industry. They talk about the problems that CPG marketers have when attempting to focus on their customers. The firms need to know, “… what is the value of a customer? How can it be measured? Also, how does [CLV] apply to the CPG industry?” (Kumar and Sunder, 2016, page 69).
The authors outline a number of different ways that have been used to assess customer value. All have challenges, for instance, Share of Wallet, Tenure, or Past Customer Value. They argue that CLV, given it is forward looking, has benefits over other “metrics” that assess merely historic data, as historic data shows what the customer has contributed not what they will contribute.
The major challenge in the CPG industry is the lack of contracts. CLV is more easily applied to cell phone contracts, cable bills, and other regular contractual and pseudo contractual relationships. In CPG industries it is often hard to know if a customer is still a customer. If the customer didn’t buy dishwasher detergent this week have they ceased to be a customer of their regular brand or have they simply got enough detergent already at home? Additional complications, such as customers buying competing products on the same shopping trip provide further methodological challenges for those estimating CLV in the CPG industries.
I particularly valued the author’s clarity over the forward looking nature of CLV. This means that only “future marketing costs” matter. “Marketing costs refer to the costs of campaigns, in store promotions, coupons, deals, and other discounts that are provided to enhance relationships, and encourage customers to make purchases with the focal brand.” (Kumar and Sundar, 2016, page 72).
CLV can be a helpful way of considering customer value. The CPG industry is one where CLV has notable challenges so it is useful to have advice on the application of CLV to this industry.
Read: “Customer Lifetime Value and Its Relevance to the Consumer Packaged Goods Industry” by V. Kumar, and Sarang Sunder, in Accountable Marketing: Linking Marketing Actions to Financial Performance, 2016, Routledge, MASB