Customer Lifetime Value (2)


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Prepared By , Bandinee Pradhan 12DM023

Tradition :

Tradition “Customer Lifetime Value means the economic value of customer relations during the whole period of relation between customer and company .” (Source: Krafft (2000) “Kundenbindung und Kundenwert“)

CLV Framework:

CLV Framework

Customer Retention :

Customer Retention Source: Harvard Business School Publishing; © 2007.

Not All Customers Are Created Equal:

Not All Customers Are Created Equal Source: Pear Analytics ©; Kelly, Ryan; 31 st Jan 2009

Historical Vs. Predictive CLV:

Historical Vs. Predictive CLV Historical Predictive Historical lifetime value simply sums up revenue or profit per customer. With historical CLV analysis, you’ll need to wait a couple years to know the CLV of those customers. Predictive lifetime value projects what new customers will spend over their entire lifetime. With predictive CLV analysis, you’ll know the long-term value of those new customers right away. Source: Custora A nalytics ©, 2012

Analysis (How To?):

Analysis (How To?) Determine the true Lifetime Value of customers Determine potential future profits from existing customers Determine the true cost of maintaining a customer Make adjustments to certain processes to reduce costs Adjust sales representatives’ call frequencies to allow more time for the more profitable customers and prospects Create programs to reward most valuable customers so they will remain loyal. Determine the cost of acquiring and maintaining a new customer Adjust marketing campaigns to target prospects with the same profile as most profitable customers.


Example :


Results :

General Motors Case::

General Motors Case: General Motors estimates its lifetime customers to be worth $276,000 on average. These six figure values are a graphic reminder of the importance of keeping the customer satisfied for life of the automobile to better the chances of a repeat purchase.

GM’s Rules For Retention::

GM’s Rules For Retention: Keep the quality of vehicles high . Create excitement around the brands and models . Provide Exceptional After Sales Service. Keep rolling out the technology (ex: fuel saving, green technology .. etc.) By following the 4 rules , Chevrolet helps GM to retain customer loyalty, and by creating customer loyalty and retention, it creates customer lifetime value to a company.


Summary : Customer Lifetime Value means the economic value of customer relations during the whole period of relation between customer and company . Therefore the Customer Lifetime Value is a very important business performance figure. As it allows to measure the value of a customer of a company in monetary meanings for the first time, Customer Lifetime Value is of increasing importance in various industries. Only a few financial figures are needed to work out the CLV of a customer (i.e. margin, planning horizon, discount rate, etc.). Equivalent to the brand equity of a firm you can easily work out its customer equity by aggregating all CLV.

References: :

References : Hughes, Arthur Middleton. “How to Compute Your Customer Lifetime Value” Database Marketing Institute [Online] 2013 (accessed 13 Jan 2013). Kelly, Ryan. “The Importance of Lifetime Value in Marketing” [Online] 2009 ( accessed 13 Jan 2013). Customer Value Lifetime Calculator : Harvard Business School Publishing Corporation, 2007 (accessed 2 Jan 2013). Clark, Peter. “The 16 business benefits of Customer Lifetime Value” The Wise Marketer [Online] Feb 2010 (accessed 4 Jan 2013). Pfaff, Donovan; Simon, Henrik. Customer Lifetime Value: SAP Instruction Guide, Department of Electronic Commerce, Johann Wolfgang Goethe-University, [Online] Published: SAP AG 2002 (accessed 4 Jan 2013). Kotler, Philip; Keller, Kevin Lane. Marketing Management: A South Asian Perspective , 12 th ed.; Pearson Education: India 2007; pp. 126-127.

Thank You:

Thank You

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