Customer Lifetime Value

Customer Lifetime Value

Kijpokin Kasemsap (Suan Sunandha Rajabhat University, Thailand)
DOI: 10.4018/978-1-5225-7766-9.ch003

Abstract

This chapter indicates the prospect of customer lifetime value (CLV) and the importance of CLV in global marketing. CLV is the total of the financial profit, calculated from the existing period to the future. CLV develops the optimal strategies for customer engagement, promotes the understanding of potential value of a customer, and enables the workforce to effectively improve customer relationships. CLV can be a crucial perspective for costs to be associated with the promotions and communications to attract the new customers and retain the existing customers. CLV can help individuals estimate a customer's monetary worth to a business after factoring in the value of the relationship with a customer over time. The chapter argues that promoting CLV has the potential to enhance marketing performance and reach strategic goals in global marketing.
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Background

Berger et al. (2006) indicated that companies need to consider revenues and costs based on cash flow of profits in measuring CLV. CLV is the sum of the revenues gained from company’s customers over the lifetime of transactions after the deduction of the total cost of attracting, selling, and servicing customers, taking into account the time value of money (Hwang, Jung, & Suh, 2004). Companies can be more profitable if they identify the most profitable customers and invest disproportionate marketing resources in them (Malthouse & Blattberg, 2005). A profitable customer is one who can create profits, increase revenues, and assist in reducing losses (Kotler & Armstrong, 1996), and the difference between the revenues and costs generated by a customer is CLV (Dwyer, 1989).

CLV is presented to evaluate customers in terms of recency, frequency, and monetary (RFM) variables (Cao, Yu, & Zhang, 2015), toward to describe the value of a client through time in terms of profitability (Moro, Cortez, & Rita, 2015). Measuring RFM is an important method to evaluate CLV (Liu & Shih, 2005). Bult and Wansbeek (1995) explained the RFM terms (i.e., recency, frequency, and monetary perspectives). R (Recency) is the period since the last purchase, and a lower value corresponds to a higher probability of the customers making a repeat purchase. F (Frequency) is the number of purchases made within a certain period. Higher frequency indicates higher loyalty. M (Monetary) is the amount of money spent during a certain period. A higher value indicates that the company should focus more on that customer (Bult & Wansbeek, 1995).

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Important Perspectives On Customer Lifetime Value

This section emphasizes the prospect of CLV and the importance of CLV in global marketing.

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