Customer lifetime value approaches and best practice applications

Two approaches of computing customer lifetime value are presented and some best practice applications are offered and challenges that firms typically face in implementing the customer lifetimevalue approach to marketing are addressed.

Abstract

Each customer varies in his/her lifetime value to a firm. A firm would like to estimate the lifetime value of each customer and use this information in planning differential marketing initiatives targeted at each customer. Customer lifetime value computations require different approaches depending on the business application that a firm is looking at. The authors present two approaches of computing customer lifetime value and offer some best practice applications. The authors also address challenges that firms typically face in implementing the customer lifetime value approach to marketing.