Customer Lifetime Value

7665 WordsOct 5, 201031 Pages
CUSTOMER LIFETIME VALUE: MARKETING MODELS AND APPLICATIONS Paul D. Berger Nada I. Nasr ABSTRACT Customer lifetime value has been a mainstay concept in direct response marketing for many years, and has been increasingly considered in the field of general marketing. However, the vast majority of literature on the topic (a) has been dedicated to extolling its use as a decisionmaking criterion; (b) has presented isolated numerical examples of its calculation/determination; and (c) has considered it as part of the general discussions of profitability and discussed its role in customer acquisition decisions and customer acquisition/retention trade-offs. There has been a dearth of general modeling of the topic. This paper presents a series of…show more content…
Determining or calculating CLV was done solely by considering specific numerical cases. Researchers considered a particular setting, with specific input parameters, and computed CLV to use it in the decision-making problem prompting the CLV determination. In this paper, a systematic general approach to the computation of CLV is offered. General mathematical models are provided to calculate CLV in a variety of typical cases. The major contribution of this paper is that it is less contextspecific than previous discussions of CLV, and that it provides general mathematical formulations of CLV, while additionally tying together the specific assumptions underlying a formulation and, indeed, the formulation. Though not exhaustive, the cases treated deal with the large majority of typical practices. The choice of cases is based on both a systematic theoretical taxonomy and on assumptions grounded in customer behavior. In addition to the introduction, this paper has four sections. First, we introduce a general way to determine CLV. Second, we treat five general cases, offering a mathematical model to compute CLV in each case. Each general case is followed by a numerical example. Third, we discuss some managerial applications of the use of a general model of CLV. As an illustration, we consider an example in which a general model of CLV is used to optimize the allocation of a promotional budget between Acquisition and Retention. Finally, we offer conclusions and suggest areas
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