Understanding how valuable is a customer for a company is very important. It is a useful measure for segmentation and targeting, and to apply different marketing actions to different consumers.
Customer Lifetime Value (CLV) is an estimation of the value of the entire stream of purchases the customer will make over a lifetime of patronage. Customer Equity is the total combined customer lifetime values of all of the company’s customers. To increase customer equity companies can do the following: acquire new customers, retain current customers, and increase customers spending. To increase customer's spending companies can increase their share of wallet, crossell or upsell. CLV analysis can be also used for segmentation and targeting.
- Note 1 (simple)
- Note 2 (advanced)
- Exercise Musicbumbum.com
- Exercise Bancard (1)
- Exercise Bancard (2) (CLV analysis for segmentation and targeting; includes solution)
- Exercise Voztel (return of two alternative marketing campaigns compared using CLV analysis)
RFM/T analysis is a marketing technique used for analyzing customer behavior. It is a useful method to improve customer segmentation by dividing customers into various groups for future personalization services and to identify customers who are more likely to respond to promotions. RFM/T is also a method used for valuing customers. It is used in data mining, database marketing and direct marketing, and in industries such as retail and professional services, among others. It’s also used in website analytics. RFM/T stands for
-Recency – How recently did the customer purchase or visit the website?
-Frequency – How often do they purchase or visit?
-Money/Time – How much do they spend or how long do they stay? It can be total or average (per visit)
- Villanueva & Hansens (2007) ¿Cuánto vale su cliente?
- Villanueva Video del curso Valor de vida del cliente en Coursera (9m)
- Customer Lifetime Value http://profesores.ie.edu/enrique_dans/
- Understanding Customer Lifetime Value: A Non-Geek’s Guide http://customersthatstick.com/blog/customer-service-techniques/understanding-customer-lifetime-value-a-non-geek-guide/
- Gupta, S. et al. Modeling Customer Lifetime Value Journal of Service Research, Volume 9, No. 2, November 2006 139-155 http://www.anderson.ucla.edu/faculty/dominique.hanssens/content/JSR2006.pdf
- Customer Lifetime Value calculator from Harvard Business Review Publishing https://cb.hbsp.harvard.edu/cbmp/resources/marketing/multimedia/flashtools/cltv/index.html
- An infographic on calculating Lifetime Value from Kissmetrics https://blog.kissmetrics.com/how-to-calculate-lifetime-value/?wide=1
- Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A databased approach. Hoboken: Wiley.