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Week 04 Part 02

The document discusses Customer Lifetime Value (CLV) analysis and its importance in measuring the return on investment (ROI) of marketing efforts. It highlights the limitations of traditional marketing effectiveness measures and presents CLV as a more accurate metric that accounts for future profits from customers. The document also outlines key elements of CLV modeling, including a discounted cash flow approach and the incorporation of survival rates.

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Riya singh
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6 views6 pages

Week 04 Part 02

The document discusses Customer Lifetime Value (CLV) analysis and its importance in measuring the return on investment (ROI) of marketing efforts. It highlights the limitations of traditional marketing effectiveness measures and presents CLV as a more accurate metric that accounts for future profits from customers. The document also outlines key elements of CLV modeling, including a discounted cash flow approach and the incorporation of survival rates.

Uploaded by

Riya singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Business Intelligence and Analytics

Customer Analytics:
Life Time Value analysis
Saji K Mathew, PhD
INDIAN INSTITUTE OF TECHNOLOGY MADRAS
Chennai, India
Return on Investment (ROI) of
marketing investments

} Availability of current data mining technology


} Estimation of survival rate key to determining customer
life time value
} How could return on marketing investments be effectively
measured?
} Sales, brand awareness have limitations
} Aggregate measures such as stock price or profit lacks
diagnostic capability
Customer Lifetime Value (CLV) and
Customer Equity (CE) [Gupta et al., 2006]
Customer Lifetime Value (CLV)
} CLV is the present value of all future profits from a
customer
} Calculated over arbitrary time horizon (Reinartz & Kumar,
2000) or infinite time horizon (Gupta, Lehmann & Stuart, 2004)
} Overcomes the limitations of traditional measures of
marketing effectiveness
} Practiced by Harrah’s, IBM, Capital One, ING etc.
CLV Modeling (Gupta, Lehmann & Stuart, 2004)
Key elements
} Follows discounted cash flow approach
} Differs from Net Present Value (NPV):
} Estimated at individual customer-segment level
} Incorporates survival rate
} Fixed cost: customer acquisition cost

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