The lifetime value concept

Date of publication: November 1, 1996

Abstract:

The significance of relationships with customers has received strong emphasis in recent marketing literature. Relations should be profitable, which can be measured by means of the LifeTime Value (LTV) concept. In this paper, a model for measuring LTV is developed. In the New Marketing LTV should be a forward-looking - instead of backward-looking - measure, based on customer and supplier data - instead of supplier data only, calculated for individual customers - instead of a group of customers, based on analyses of developments - instead of copying the past, and used for creating, developing and maintaining relationships with customers - instead of acquiring new customers only. However, our empirical study shows that on average, a larger proportion of statistics based on historical data is available as compared to statistics based on future data, LTV calculations are more frequently based on supplier data than on customer data, and LTV is more often calculated for groups of customers than for individual customers. This implies that there is still considerable room for a more sophisticated use of LTV analyses in the New Marketing.

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