Passenger Reveals a New Formula for Total Customer Value

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The new formula for total customer value explains how new technologies have emerged that need to be accounted for when calculating the true value of a customer.

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Understanding the value of a customer is the core of any business strategy.

Passenger ( announces a new formula for total customer value. By looking at the formula, Passenger discusses how new technologies have emerged that need to be accounted for when calculating the true value of a customer.

Understanding the value of a customer is the core of any business strategy. Historically the value of a customer was assessed based only on their direct contribution to company’s profitability. This led to strategies focused on the acquisition of customers with high Immediate Transaction Value. With this view, as was typically the case, companies commonly looked for large and/or frequent transactions as the primary goal of the relationship with their customer.

As companies took a more long-term view of their customer relationships, the concept of lifetime value started to emerge as a more viable measure of customer value. For example in the mid 80’s, credit card banks and credit companies began marketing credit cards to college students. Even though college students are a high-risk category, are heavily in debt, and have little assets in their name; they represent future opportunity for car loans and home mortgages. Card companies knew that if they hooked the college kid on the brand there was a very high probability of realizing substantial lifetime monetary value. As this approach emerged, it provoked a changing definition of customer value. Consequently, many CRM applications tools emerged in the 90s to help manage the customer relationship and realize this lifetime value.

In the last few years, the traditional way of measuring lifetime value has completely turned on its head with the emergence of social business. Customers are now connected through social networking platforms such as Facebook, Twitter, Google+, etc. and spend a great deal of time interacting and informing one another. As a result, the definition of the Total Customer Value needs to be revised to reflect these dynamics:

There are three new components in the measure of Total Customer Value; Referral Value, Influence Value and Knowledge Value. The sum total of these four components may far exceed the traditional measure of Lifetime Transaction Value. However, in the case of an unhappy customer with a high level of influence, the Total Customer Value will in fact be negative! So how do we start measuring this new social business value equation? Let’s consider these three categories of customer value from a social business point of view:

  •     Influence Value: This is the value of a customer by virtue of their online communications (positively or negatively) such as blogs and tweets. In fact, these people represent less than 1% of the online community while they are actually responsible for publishing 99% of the content. They include many known influencers and can have significant impact on their followers.
  • Referral Value: 99% of the users of social network platforms have friends and colleagues. They share interests and suggest products and solutions. This value depends on the size of the customer’s personal network.
  •     Knowledge value: This is the value a customer by virtue of their incremental understanding of the competitor’s product and the advantages and disadvantages one product has over the other. This knowledge can be invaluable to a company and can be used to design better products and services or to make more informed decisions around business strategy.

Just like CRM did with Customer Lifetime Value in the 90s, new technologies have emerged to start harnessing and capturing the complete value of a customer. For example, "Advocacy Communities" are becoming a way to engage with influencers and highly networked individuals to better inform them about a product or a brand. This gains the customer’s trust and co-operation in influencing their fans and recommending the product or solution to their friends. By bringing this group into a private on-line community, the company can then engage with them and educate them on its products and messaging and ultimately make them online brand ambassadors. Similarly, “Innovation Communities” are being used to engage with knowledgeable customers and include them in product development lifecycle, or gather suggestions on service improvements.

By implementing these new measurements of Customer Lifetime Value in the current business environment, we will create more effective marketing strategies, increase the value of our brand and drive sales exponentially.

Further information can be found at or by calling 323 556-5400.

About Passenger

Passenger communities enable the worlds leading brands to connect, create and communicate with key stakeholders online, on mobile and on social networks. Passenger combines industry-leading technology with expert community management and engagement services to allow your brand to connect in real-time with your community to inform research, product development, and marketing decisions. In addition, all of the data collected from the social brand intelligence platform is warehoused in a single database with robust analytic capabilities, which provides a holistic view of your social brand community, and actionable, member-driven insights. For more information, visit

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Kareen Vilnai
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