Procedia - Social and Behavioral Sciences 109 ( 2014 )

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1 Available olie a ScieceDirec Proceia - Social a Behavioral Scieces 109 ( 2014 ) Worl Coferece O Busiess, Ecoomics A Maageme - WCBEM2013 Aalyzig he applicaios of cusomer lifeime value (CLV) base o beefi segmeaio for he bakig secor Mohamma Safari Kahreh a *, Mohamma ive b, Asghar Babaia c, Mosafa Hesa a Deparme of Busiess Amiisraio, Faculy of Maageme, Uiversiy of ehra, P.O.Box: , ehra, Ira b Deparme of Busiess Amiisraio, Faculy of Maageme, Uiversiy of ehra, P.O.Box: , ehra, Ira c Deparme of Busiess Amiisraio, Faculy of Maageme, Uiversiy of ehra, P.O.Box: , ehra, Ira Deparme of Public Amiisraio, Faculy of Maageme, Uiversiy of ehra, P.O.Box: , ehra, Ira Absrac Segmeaio is ceral o markeig sraegy because iffere cusomer groups imply he ee for iffere markeig mixes. he echique of segmeig a marke also reveals profi opporuiies a sraegic maer for ew compeiors o challege esablishe marke leaers. As a marke evelops, ew segmes ope up a oler oes e o eclie. So, achievig a reliable a vali approach o segme he marke for ay aciviy-base markes is ecessary. his suy aims o uersa a goo approach o segme he marke amely beefi segmeaio base o cusomer lifeime value. Beefi segmeaio is a approach o marke segmeaio whereby i is possible o ieify marke segmes by causal facors raher ha escripive facors. O he oher ha a valuable ool for measurig he real values of cusomers is cusomer lifeime value or CLV. he more a markeig paraigm evolves, he more log-erm relaioship wih cusomers gais is imporace. CLV aims o measure a jus real value of cusomers of special par of marke. hus CLV is a basic valuable ool o uersaig he beefis segmeaio sraegy. his paper aims o propose a framework o measure he value of each segme of cusomers base o he CLV calculaio wih focus o bakig secor he Auhors. Publishe by Elsevier L. Selecio a peer review uer resposibiliy of Orgaizig Commiee of BEM Keywors: beefi segmeaio, cusomer relaioship maageme, cusomer lifeime value, sraegy, bakig secor; 1. Iroucio Accorig o Koler (1980), Marke segmeaio is he subiviig of a marke io isic subses of cusomers, where ay subse may coceivably be selece as a marke arge o be reache wih a isic markeig mix. he larges problem is how o subivie he marke. he crierio for appropriae segmeig mos ofe cie is ha he segmes be homogeeous wihi a heerogeeous bewee (F. Rola, 1972). I cosumer markes, researchers bega wih emographic a socioecoomic variables, such as age, icome, a eucaio, as he basis for segmeaio. Segmeaio bases ow iclue persoaliy a lifesyle, aiue, behavior, prouc usage, a purchase paer variables (Rowla e al, 1986). I iusrial markes, similar variables have bee applie o orgaizaios raher ha o iiviuals o serve as segmeaio bases. O he oher ha o measure he real value of each of he segmes of cusomers he cusomer lifeime value has become a valuable a pracical ool. herefore, i is esseial o buil refie sraegies for cusomers base o heir value (Kim e al, 2006). he move owars a cusomer ceric approach o markeig, couple wih he icreasig availabiliy of cusomer-rasacio * Correspoig Auhor: Mohamma Safari Kahreh. el.: aress: [email protected] he Auhors. Publishe by Elsevier L. Selecio a peer review uer resposibiliy of Orgaizig Commiee of BEM oi: /j.sbspro

2 Mohamma Safari Kahreh e al. / Proceia - Social a Behavioral Scieces 109 ( 2014 ) aa, has le o a ieres i esimaig a uersaig Cusomer Lifeime Value (Beoi a Poel, 2009). CLV is viewe as he prese value of he fuure cash flows associae wih a cusomer (Pfeifer e al, 2005). Kowig he CLV of iiviual cusomers eables he ecisio maker o improve he cusomer segmeaio a markeig resource allocaio effors (Kim a Lee, 2007; Kumar e al, 2006) a his i ur will lea o higher reeio raes a profis for he firm (Hawkes, 2000). his research paper ivesigaes he role of CLV o he beefi segmeaio wih focus o he bakig secor. Each segme of cusomers will be aalyze base o he calculae cusomer lifeime value. 2. Beefi Segmeaio Segmeaio is ceral o markeig sraegy because iffere cusomer groups imply he ee for iffere markeig mixes (Doyle, 1987). he aure of he fiacial services iusry is such ha baks, builig socieies a isurace compaies cao iscrimiae i erms of localiy or regio. Demographic a socio-ecoomic segmeaio, base o age, sex, marial saus, icome, occupaio, eucaio, religio, social class a so o, assumes hese variables have a ifluece o cosumer behavior, a ha hey ca herefore be use as proxies for irec ees aalysis. Lifesyle segmeaio ivies he marke io segmes base o aciviies, ieress, a opiios (Plummer, 1974). However, i coras o emographics, where i is possible o efie characerisics, here are o fixe efiiios for lifesyle. Because he ulimae objecive of segmeaio is o prouce segmes ha are homogeeous wihi a heerogeeous bewee wih respec o beefis sough, a logical aleraive is o begi he segmeaio by groupig cosumers or orgaizaios base irecly o measures of beefis sough. his approach was appropriaely ame beefi segmeaio by Russell Haley, who i 1968 escribe i hus: A approach o marke segmeaio whereby i is possible o ieify marke segmes by causal facors raher ha escripive facors migh be calle beefi segmeaio. he belief uerlyig his segmeaio sraegy is ha he beefis, which people are seekig i cosumig a give prouc, are he basic reasos for he exisece of rue marke segmes (Russell, 1968). Beefi segmeaio ca, herefore, be regare as a approach o marke segmeaio, which ieifies marke segmes, by causal facors raher ha escripive facors. I may markes, segmeaio base o beefis, ees, or moivaios has prove o be more powerful ha emographic facors or prouc feaures i uersaig marke yamics (Plummer, 1974; Wi, 1978; Lesser a Hughes, 1986). Beefi segmeaio suies frequely rea aribues as beefis. As a resul, beefis as he reaso for aribue prefereces are ofe overlooke because he same aribue may lea o iffere beefis, a case of mulifialiy (Pieers, 1993), a because a sigle beefi may be base o muliple aribues, a case of equifialiy (Pieers, 1993), segmes base o aribues may iffer from segmes base o beefis sough, a beefi segmeaio which is acually base o aribues isea of o acual beefis soughs may be grossly misleaig (Bosche, e al, 1999). Beefi aalysis allows a builig sociey or bak o cocerae is markeig effor o is sreghs, a o arge beefi segmes i keepig wih hem. ha is, iffere segmes are suiable for builig socieies a baks wih paricular markeig sreghs. 3. Cusomer Lifeime Value Cusomer Lifeime Value has bee suie uer he ame of LV, Cusomer Value, Cusomer Equiy a Cusomer Profiabiliy. he cocep is efie as he sum of he reveues gaie from compay s cusomers over he lifeime of rasacios afer eucio of he oal cos of aracig, sellig a servicig cusomers, akig io accou he ime value of moey (Hwag e al, 2004). he basic formula for calculaig CLV for cusomer i a ime for a fiie ime horizo (Berger & Nasr, 2004) is: profi Re veue Cos CLVi, = CLV i = = 0 ( 1+ ), = 1 (1 + ) i= 1 (1 + )

3 592 Mohamma Safari Kahreh e al. / Proceia - Social a Behavioral Scieces 109 ( 2014 ) heoreically, CLV moels shoul esimae he value of a cusomer over he eire cusomer s lifeime. However, i pracice mos researchers use a fiie ime horizo of hree or four years (Dokers e al, 2007; Rus e al, 2000, Beio a Poel, 2009). hree o four years is a goo esimae for he horizo over which he curre busiess evirome woul o subsaially chage a eve he, here is sigifica uceraiy i preicig cusomer behavior (Vekaesa e al, 2007). Moreover, some research cosiers a eve shorer ime horizo (Hwag e al, 2004). Give ha oe of he key issues whe ecisio makers use he CLV meric is wheher he firm ca provie a aequae preicio of he CLV of each cusomer i he aabase (Malhouse & Blaberg, 2005; Vekaesa & Kumar, 2004), i is clear ha he preicive accuracy of he CLV is of primorial imporace. Furhermore, hese preicios are ofe use as guielies for ivesmes i segmes of cusomers (Zeihaml e al, 2001; Beio a Poel, 2009). Daa ipus commoly use whe makig cusomer lifeime value calculaios are: Acquisiio cos - Chur rae - Discou rae - Reeio cos - ime perio Perioic Reveue - Profi Margi. Acquisiio cos: he amou of moey a markeig eparme has o spe, o average, o acquire a sigle ew cusomer. Chur rae: he perceage of cusomers who e heir relaioship wih a compay i a give ime perio. Chur rae ypically applies o subscripio services, such as log isace phoe service or magazies. Discou rae: he cos of capial use o iscou fuure reveue from a cusomer. Discouig is a avace opic ha is frequely igore i cusomer lifeime value calculaios. Reeio cos: he amou of moey a compay has o spe i a give ime perio o reai a exisig cusomer. Reeio coss iclue cusomer suppor, billig, promoioal iceives, ec. ime perio: he ui of ime io which a cusomer relaioship is ivie for aalysis. Perioic Reveue: he amou of reveue collece from a cusomer i he ime perio. Profi Margi: Profi as a perceage of reveue. Depeig o circumsaces his may be reflece as a perceage of gross or e profi. For icremeal markeig ha oes o icur ay icremeal overhea ha woul be allocae agais prof gross profi margis are accepable (Safari Kahreh a Safari Kahreh, 2012). 4. Mehoology his research aims o bes valuae he cusomers of each of he segmeaios base o he beefi segmeaio. For his purpose a framework of cusomer lifeime value aalysis has bee presee. his framework cosiss of basic elemes for CLV calculaio for gahere aa. able 1 shows his framework. Also, require aa has bee gaie from oe of he commercial bak s cusomers for 4 cosecuive years. Accorace wih hese aa a base o he framework of CLV, all cusomers segmee o 6 basic caegories. Each segme has ow characerisics a requires appropriae markeig plas a programs o success bak s sraegic markeig. able 1. Iroucig he esseial parameers for CLV moel of he research (Safari Kahreh e al, 2011) CLV parameers P S M D R Descripios he probabiliy of coiues ieracio of cusomer wih he bak; reeio rae; or loyaly rae of cusomers. his rae will calculae from he followig formula: P = 1 - C.R, a also C.R is he amou of chur rae of cusomers, as follow: C.R = Chur Rae he average amou of cusomer s accous afer subracig by legal a liquiiy savig rae; his amou of accous iveory is he free eposis for reail baks. he margial profis for S ; or i he oher ha, margial profis for free eposis pracices a aciviies. Discou rae ha is equal o: 1 + iflaio rae. his is he firs group of coss ha associae wih he irec coss abou he accous. his is he firs group of coss ha associae wih he iirec coss. his group are icluig of coss such as: averisig a markeig coss, epreciaio coss, amiisraive coss, oher persoel coss, ec. Number of perios.

4 Mohamma Safari Kahreh e al. / Proceia - Social a Behavioral Scieces 109 ( 2014 ) Here is he mahemaical moel for CLV measurig of he research: CLV = = 1 P ( S M ) = 1 ( P D ) + ( R ) 5. Fiigs Accorace wih gaie aa from bak s cusomer accous a base o he above CLV formula all accous has bee segmee o 6 iffie groups. hese iffere groups are icluig: G.C (Gol Cusomers), A, B, C, D a E. afer all calculaio base o he CLV formula, able 2 preses he resuls of aa gaherig a aalysis for 4 cosecuive years ecompasses: 2005 o able 2. Cusomer segmeaio base o he CLV calculaio for 4 cosecuive years 2005 o Segmes GC A B C D E oal Coclusio a Fuure Research Beefi segmeaio is a useful cocep i cusomers groupig io iffere caegories. he belief uerlyig his segmeaio sraegy is ha he beefis which people are seekig i cosumig a give prouc are he basic reasos for he exisece of rue marke segmes (Russell, 1968). Beefi segmeaio ca, herefore, be regare as a approach o marke segmeaio which ieifies marke segmes by causal facors raher ha escripive facors. O he oher ha, he more a markeig paraigm evolves, he more log-erm relaioship wih cusomers gais is imporace. Nowaays mos of corporaios a firms i he worl, icluig maufacurers a servicers, icreasigly gai heir icomes a profis hrough cosrucig a maiaiig log-erm relaioship wih cusomers. he move owars a cusomer-cere approach o markeig, couple wih he icreasig availabiliy of cusomer rasacio aa, has le o a ieres i uersaig a esimaig cusomer lifeime value (CLV). his paper aime o measure he real values of each segmes of cusomers base o he CLV. o achieve his purpose, base o he CLV formula a aa gaie from oe of he commercial bak s accous, segmeaio has bee presee. All cusomers ivie io 6 basic segmes. Accorig o hese measuremes, policy makers will bes eal wih profiable cusomers i each of he marke segmes a also appropriae sraegies a programs ca be applie for each segmee cusomers. Base o his meho, he measurig he efficiecy of markeig sraegies will be possible. Fuure researchers recommee preseig a ew cofirme framework o measure he efficiecy of markeig programs i he evelopig markes. Refereces Beo Dries F a Poel, Dirk Va e. (2009). Beefis of quaile regressio for he aalysis of cusomer lifeime value i a coracual seig: A applicaio i fiacial services. Exper Sysems wih Applicaios, Volume 36, Issue 7, Pp: Berger, P., & Nasr, N. (1998). Cusomer lifeime value: markeig moels a applicaios. Joural of Ieracive Markeig, 12(1), Biea, J. a Kassarjia, H. (1969). A overview of marke segmeaio. I Berar, A. a Mori, N. (Es), Markeig i a Chagig Worl. AMA, Chicago, IL. pp

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