Which Customers Are Worth Keeping and Which Ones Aren’t? Managerial Uses of CLV

Overview: According to several Wharton marketing professors who have studied this issue, there is no easy answer, despite new and increasingly sophisticated efforts to measure what is called “Customer Lifetime Value” (CLV) – the present value of the likely future income stream generated by an individual purchaser. “For many companies, their whole business revolves around trying to understand which customers are worth keeping and which aren’t.” This has led managers from a broad cross section of industries to seek out more refined measures of CLV, using data-intensive procedures to identify top customers in terms of their likely future purchasing patterns.” The goal is not only to identify customers, but to reach out to them through cross-selling, up-selling, multi-channel marketing and other tactics – all of which are tied to metrics on attrition, retention, churn and a set of statistics known as RFM – recency, frequency and monetary value. “CLV is a hot area,” although CLV is by no means new – it has long been used in business markets dealing with large key accounts – the concept has been energized by the increasing sophistication of the Internet “which allows companies to contact people directly and inexpensively.” CLV sees customers as a resource from which companies are trying to extract as much value as possible.

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Format: HTML | Date: Jul 2003 | Pages: 1