Customer Lifetime Value

Sameer Kalva

MWF 1:00-1:50 PM

MKTG 460

22 February 2018

Customer Lifetime Value

The customer lifetime value model helps us determine and analyze how discounts will affect the activity level of our customers and how long they may remain an active customer. The CLV is a metric that calculates a customer’s value throughout the entire span of the customer’s relationship with the company. Some of the questions that we can ask are: a customer’s base worth, how many active customers we will still have in a couple time periods, how much a customer is worth based on their activity level. This model is being used to determine questions related to the customer’s overall value to the company and how our discounts affect the activity level of the customer’s activity level over time.

Customer Lifetime Value analysis allows you to use your own imported data or to use a preformatted template to help create a data set and run the program. This analysis works by selecting the categories that you will place your customers in based on their activity level (active, warm, cold, lost). You will then enter in your data which includes: number of customers, gross margins, marketing costs and the transition matrix (the likelihood a customer switches during a given period). You will then run the CLV analysis and you will select the amount of periods you would like to get data for along with the discount rate. Then you will either choose from a contractual model or a transactional model. This is basically just choosing between a model that has continuous transactions and a known end to a contract versus a contract that has transactions with no implied end to the contract. After selecting these options, you will then be asked to select data ranges and you will proceed with the preselected ranges.