Customer Segmentation and Customer Lifetime Value (CLV)

Customer segmentation is an essential strategy in logistics operations, allowing you to optimize the delivery of products and services and adequately allocate resources that are often limited. There are several basic ways to segment customers, some of them include:

1. Geographic Segmentation, which involves dividing customers based on their geographic location, such as by city, region, country, or continent. This can be useful for logistical operations, as geographic location can affect factors such as delivery time and transportation costs;
2. Demographic Targeting, when dividing customers based on characteristics such as age, gender, occupation, income level, and family size. This segmentation can be useful for logistical operations when customizing delivery or products;
3. Purchasing Volume Segmentation, as some customers may buy in bulk while others may buy in small volumes. Segmentation based on purchase volume can help optimize product storage and delivery;
4. Segmentation by Purchase Frequency, which groups customers who order regularly, highlighting them from others who may order sporadically;
5. Behavioral Segmentation, which is based on a customer's purchasing behavior, including their preferences, brand loyalty, and consumption patterns;
6. Psychographic Segmentation, in which customers are divided based on their personalities, lifestyles, attitudes and interests. While it may be more difficult to apply directly to logistics operations, it can still provide useful insights for service customization;

In addition to these, a particularly valuable approach is customer value segmentation, or Customer Lifetime Value (CLV). CLV is a forecast of the total future value a customer can generate over time. It takes into account factors such as the frequency and volume of customer purchases, the profitability of those purchases, and the estimated time the customer will continue to do business with the company.

Segmenting customers by CLV helps identify high-value customers who are more profitable and loyal and justify a greater investment of resources, as many e-commerce, credit card and airline companies already do. It also makes it possible to identify low-value customers, where it may be less profitable to invest so many resources. This approach helps streamline logistical operations, prioritizing resources and providing superior service to high-value customers.

Calculating CLV can be complex as it involves forecasting the future and using multiple variables. A simple formula for calculating CLV is as follows:

Where:

• ARPU (Average Revenue Per User) is the average revenue per customer over a period of time;
• CTS (Cost to Serve) is the cost of serving a customer;
• CR is the Churn rate, which is the percentage of customers that stop doing business with you in a given period;
• d is the discount rate, which is the rate at which you discount future cash flows, usually the company's WACC;
• CAC is the Cost of Acquisition of a new Customer.

Customer Acquisition Cost (CAC) is calculated by dividing the total marketing and sales expenses in a given period by the number of new customers acquired in the same period.

Where:

• MC represents the total marketing and sales expenses in a given period;
• CA represents the number of new customers acquired in the same period.

In turn, the Churn rate, or churn rate, is calculated by dividing the number of customers you lost during a given period by the total number of customers you had at the beginning of that period.

Where:

• NC is the number of customers you lost;
• TC is the total number of customers at the beginning of the period.

For example, if you started with 200 customers and lost 20, your churn rate would be 10% (20/200).

Let us now look at a simple numerical example of CLV calculation, based on the analysis of an annual database:

ARPU: BRL 500

Cost to Serve (CTS): R$200

Churn Rate (CR): 20%

Discount rate (d): 10% pa

Customer Acquisition Cost (CAC): BRL 100

Using the formula CLV = [(ARPU – CTS) x ((1-CR) / (1 + d – (1-CR)))] – CAC, we can substitute these values ​​into the formula and we get:

CLV = [(500 – 200) x (0,8 / (1 + 0,1 – 0,8))] – 100

CLV = BRL 700

Therefore, the CLV in this case would be R$700. This means that, based on these parameters, each customer would bring in a result of R$700 during the average length of stay as a customer.

These metrics are crucial to understanding your customers' value and cost, and can help you optimize logistics operations by identifying where to invest resources and how to deliver superior service to high-value customers. For this reason, it is recommended to carry out this exercise by segmenting your customer base, which can provide more specific parameters for the variables in the equation and allow you to create differentiated service packages for each group of customers.