Cpg Firms Implement Clv Marketing Paradigm.

Week 4 reading summary

Due to the development of technology, CLV plays an effective role in CRM in the past decade, as it leads to positive financial gains in both B2B and B2C settings. On the other hand, CLV is still applicable in traditional product-centric industries like CPG. CPG, as a traditional marketing, has focused on mass marketing and delivering standard goods like food and beverage. In this case, CPG may not be sustainable in a dynamic marketing environment nowadays. Traditional metrics like market share/ revenue can’t provide the complete picture as well as any information about customers. Besides, these metrics are sensitive to external effect while CLV metrics are more stable and long-term focused and forward-looking.

 As a result, there will be three major challenges when CPG firms implement CLV marketing paradigm. First, it leads to the problem of multiple discreteness because CPG consumers don’t always purchase a single brand in a given month. Due to the low switching costs, variety-seeking consumers tend to try different brands within the same shopping period that leads to multiple discreteness. Second, there is a heavy brand switching due to low cost so that the effects of brand-switching and competing-brand should be considered. Besides, traditional CLV models often ignore the role of competition and collection of data is challenging due to scale and cost issues in CPG context. Third, it should also be considered that the budget-constrained nature often happens in CPG context, to indicate whether the maximum budget amount will affect CLV or not. Based on these considerations, a structural model is applied to simulate the effect of changes to the budget constraint on CLV and the own effects and cross-effects of price on quantity consumed. The result shows that budget constraints significantly and non-linearly affect the CLV of a CPG customer and price elasticity in nonlinear and asymmetric across various CLV segments.

Real life application

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