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Today, more than ever before, customer experience is the main focus of brands and companies all around the world. And yet many organisations are struggling to turn this philosophy into a profitable business strategy.

In this whitepaper we focus on Customer Value Management, i.e. measuring how a company’s customers perceive value for money compared their competitors’ customers, sometimes also known as Customer Value Added. Download the whitepaper below.

Download the Customer Value Management Whitepaper

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Companies do everything in their power to make their customers happy, whether by providing great service, incredible customer experience or simply by offering the biggest discount. A happy customer is a return customer. Therefore it’s crucial that companies gain insight into just how satisfied their customers actually are.

But how can you measure something as subjective and relative as ‘happiness’ or ‘satisfaction’? The calculation is based on three aspects: effort, success and emotion. Generally speaking, the less effort it takes customers to successfully achieve their goals or fulfil their needs, the happier and more satisfied they are.

So how do we capture those results? We look at two methods here, the Net Promoter Score (NPS) and Customer Satisfaction (CSAT):

The Net Promoter Score

The Net Promoter Score (NPS) measures a customer’s willingness to recommend a company’s products or services to others, using the following specific question: “How likely are you to recommend company/brand/product X to a friend/colleague/relative?”.

The question is answered using an 11-point scale, ranging from 0 (not at all likely) to 10 (extremely likely), and the score given lets us distinguish three categories of people:

  • Promoters = respondents giving a 9 or 10 score
  • Passives = respondents giving a 7 or 8 score
  • Detractors = respondent giving a 0 to 6 score

The Net Promoter Score is calculated as the difference between the percentage of ‘promoters’ and ‘detractors’.

The average American company scores less than +10 on the NPS, while the highest performing organisations score between +50 and +80.

Customer satisfaction

Customer satisfaction (CSAT) identifies the strengths and weaknesses of a company’s customer experience. The data is generally gathered through surveys in which respondents are asked to rate several aspects of their experience.

In total there are four ways to measure customer satisfaction

Benefits of Customer Value Management

So far, we have only talked about customer satisfaction, but how does the concept of customer happiness relate to Customer Value Management (CVM)?

Quite simply, CVM helps companies determine which customers are worth having, and which are not. These insights can be beneficial for companies in three ways:

  • offering valuable insights into the customer base;
  • forcing companies to look for new ways to increase customer satisfaction;
  • reducing customer churn, i.e. customers ending their relationship with a company.

Take a look at the benefits of Customer Value Management.

The core elements of customer value

Now that you know how to measure customer satisfaction and how it relates to Customer Value Management, it’s time to take a closer look at ‘customer value’. How is it defined, and how is it measured?

Recency, Frequency and Monetary Value

Marketers identify three core elements that make up customer value: Recency, Frequency and Monetary value (RFM).

RFM is a marketing analysis technique used to organise your customers from least valuable to most valuable, by taking into account:

  • how recently a customer has purchased (Recency);
  • how often a customer makes a purchase (Frequency); and
  • how much a customer spends (Monetary value).

Ultimately, based on these insights, companies can segment their customers into meaningful groups, which can then be used to determine the Customer Lifetime Value (CLV), yet another important metric for Customer Value Management.

What you need to know about Customer Lifetime Value

Customer Lifetime Value (CLV) represents the average amount of money customers are expected to spend on a specific company or brand over their entire lifetime.

The number can be an indicator of:

  • how much your customers like your products of services;
  • what you’re doing right in terms of your relationship with your customers; and
  • how you can improve.

To calculate the CLV, you need to know the Lifetime Value:

Lifetime Value = average value of sales  x  number of transactions  x  retention time period

Once you have the Lifetime Value, the Customer Lifetime Value can be calculated as follows:

Customer Lifetime Value = lifetime value  x  profit margin

How to increase your customer value?

The million dollar question every company or brand is trying to answer is: ‘What strategies impact customer value the most?’.

As we said at the beginning of this article, customer centricity is key across all stages of the customer lifecycle.

  1. Reach: grabbing the attention of the people we want to reach.
  2. Acquisition: attracting and bringing our target audience into the influence sphere of our organisation.
  3. Conversion: turning our prospects into customers.
  4. Retention: trying to keep our customers and sell them more (cross-selling, up-selling).
  5. Loyalty: the ultimate goal – our customers become loyal partners and even ‘brand ambassadors’.

To optimise customer value across all five stages, 4P square consultants follow a four-step plan:

  1. Segmenting your audience: divide your audience into homogeneous groups with similar needs and similar behaviour, using the RFM method.
  2. Using personas: turn your customer segments into 3-5 identifiable fictional characters that represent your audience.
  3. Developing the customer life cycle: identify the most important touch points across the life cycle and develop a roadmap for your personas.
  4. Measuring the customer experience: using NPS, CSAT or other methods.

Want to know more? Read how can brands and companies increase customer value.

Must-have tools for Customer Value Management

Optimising customer value can seem like a daunting challenge. Fortunately, there are plenty of customer value tools out there that can help marketers and managers in this area.

Here’s an overview of the most important ones we use at 4P square:

  • Customer Relationship Management (CRM): Salesforce Essentials, Microsoft Dynamics 365, Freshdesk, Zoho
  • Personas: Xtensio, Hubspot, Userforge, Smaply
  • Big Data: Apache Hadoop, Cloudera, Cassandra, Knime
  • AI and advanced analytics: Watson Marketing, Customer Experience Analytics
  • Customer journey & experience management: Hotjar, UXpressia, Smaply, Smartlook
  • Marketing automation: Hubspot, Microsoft Marketing, Marketo, Oracle Eloqua, Sharpspring, LeadSquared, ClickDimension
  • Cross-channel campaign management: Adobe Campaign, Autopilot, Triblio, Oracle Responsys
  • Loyalty management: Loyverse, RepeatRewards, Influitive

Best practices for Customer Value Management

From retail to e-commerce, technology to manufacturing, brands are becoming increasingly aware of the importance of the customer journey and how to keep (return) customers happy across all phases of the customer journey:

  • Acquisition phase
    • Content marketing
    • Brand ambassador program
    • Referrals
  • Welcome phase
    • Welcome emails
    • Brand-specific welcome procedures
  • Loyalty phase
    • Loyalty programs and rewards
  • Considering leaving
    • Predictive analysis (personalised communication with discounts)
    • Chatbots
  • Leaving
    • Win-back sales

Artificial Intelligence and Machine Learning

Welcome to the age of deep learning, and with human guidance, AI is finally reaching its true potential. Today, the technology IBM dreamed about in 1956 takes the form of AI platforms like Watson Marketing.

Products like Customer Experience Analytics allow marketers to finetune the customer journey and identify gaps where consumers could be experiencing friction.

These tools allow companies to get a more complete view of the customer journey to improve customer engagement and conversion rates.

Today is right time to truly harness the power of artificial intelligence and machine learning and put it to work for business success.

Customer journey and experience management

Customer journey mapping has become a marketer’s favourite tool for identifying customer’s needs. Discover more about the key customer journey tools.

Multi-channel campaign management

In addition to customer journey tools, there is a type of software that will help you automate and scale repetitive marketing tasks and also lets you analyse your marketing efforts across the whole customer journey.

Find more about these marketing automation and cross-channel campaign management tools.

Loyalty management and gamification

Loyalty management software basically aims at building a successful loyalty program for business and individual customers.

It has the purpose of providing strong value to the customers followed by improved customer penetration, cross selling and retention.

Enhancing the customer journey: best practices

Finally, in order to be successful at creating value for your customers and use all these recommended tools currently, you need to understand your customer first.

The different stages of the customer journey are:

  • Acquisition phase
  • Welcome phase
  • Loyalty phase
  • Consider to leave phase
  • Leave phase
  • Win back phase

Learn more about successful customer journey best practices from brands such as Fnac, Tomorrowland and Proximus.

Download the Customer Value Management Whitepaper

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