Customer Relationship Value vs Customer Lifetime Value


An interesting article in this month’s Harvard Business Review describes the difference between Customer Referral Value (CRV) and Customer Lifetime Value.

CLV is more well known — it is the lifetime value of a customer to a particular company. The value is computed by taking a sum of their purchases from the company over time.
CRV is more tricky — it is defined as the value of the customer’s referrals over time. In other words, it is the degree to which other people do business with the company as a result of being referred by that individual.
What is interesting is that the two are not necessarily related.
Miss Mattie, who rarely frequents the store and hardly buys anything when she does, could turn out to have very high CRV if she happens to be the helper of the richest family in the district, and her sister also happens to be the helper of someone else in the same family.
In an earlier post, I made the point that traditional CRM is too shallow an instrument to measure the value of a customer in Caribbean economies. I argued that the person’s network was just as important, and to ignore the Miss Mattie’s of the district is to do oneself grievous harm.
This new measure is, I think, an important one in understanding retail behaviour in the region, marked as it is by vast disparities in income and education. The societies are small, and CRV is critical to understanding the importance of customers by beginning to understand the quality of their networks, and the likelihood of them giving a positive referral.
When the CRV is known, companies can make intelligent decisions about how to market and advertise to each customer. Such an analysis is sure to produce some surprises.