Some measurements of customer value such as customer lifetime value (CLV) and customer profit (CP) aim to measure the direct economic value of a customer (Kumar, 2018).
As many of us understand, the customer’s value goes far beyond this with their indirect value they provide through their engagement with the brand and those around them.
The indirect value of a customer is generated through activities such as making recommendations (word-of-mouth), influencing others’ purchase decisions, and providing insights and feedback to a company (Kumar, 2018).
The TRUE overall value of a customer must take into account both the direct and indirect activities for the following reason:
A customer who frequently buys a product such as shampoo will have a far greater direct value to the company. But a customer who may infrequently buy the shampoo but influences 5 or more of their friends to buy the shampoo will produce a far greater indirect value and potentially overall value than the first customer.
Understandably, calculating these indirect values of a customer is an extremely complex task and is why measurements such as CLV and CP avoid accounting for them (Kumar, 2018).
References:
Kumar, V (2018) “A theory of customer valuation: Concepts, metrics, strategy, and implementation” Journal of Marketing, 82 (January), 1-19.
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