Abstract
This chapter defines the concept of Customer Lifetime Value (CLV) and provides an approach to compute CLV. In simple terms, CLV refers to the net present value of future cash flows from a customer. Using a numerical example, this chapter provides the approach and formula to compute CLV. It also discusses the various drivers that can maximize CLV for both B2B and B2C firms. Further, the chapter discusses some of the proven strategies to maximize customer profitability. First, the chapter discusses the relationship between customer lifetime with the firm and the resulting profitability. Based on this relationship, this chapter discusses a model that can be used to measure the lifetime values of customers when they share a noncontractual relationship with the firm (i.e., a relationship in which customers are not bound by contracts). Second, a model for incorporating customers’ projected profitability into lifetime duration computation is discussed. This model builds on the idea and approach discussed in the first model. Finally, a model for identifying the true value of a lost customer is also discussed.
References
Bendapudi, N., & Berry, L. L. (1997). Customers’ motivations for maintaining relationships with service providers. Journal of Retailing, 73(1), 15–37.
Berry, L. (1995). Relationship marketing of services growing interest, emerging perspectives. Journal of the Academy of Marketing Sciences, 23(4), 236–45.
Bolton, R. N. (1998). A dynamic model of the duration of the customer’s relationship with a continuous service provider: The role of satisfaction. Marketing Science, 7(Fall), 17–23.
Clark, G. L., Kaminski, P. F., & Rink, D. R. (1992). Consumer complaints: Advice on companies should respond based on an empirical study. Journal of Consumer Marketing, 9(3), 5–14.
Direct Marketing Association. (2007). Direct marketing expenditures account for 50% of total advertising expenditures, DMA’s 2007 ‘Power of Direct Marketing’ report unveils. DMA: Direct marketing association; conferences, seminars, research & articles. Retrieved October 16, 2007, from http://www.the-dma.org/cgi/disppressrelease?article=1015
Direct Marketing Association. (2009). What is the direct marketing association? DMA: Direct marketing association; conferences, seminars, research & articles. Retrieved July 26, 2011, from http://www.the-dma.org/aboutdma/whatisthedma.shtml
Dowling, G. R., & Uncles, M. (1997). Do customer loyalty programs really work? Sloan Management Review, 38(4), 78–82.
Dwyer, F. R. (1997). Customer lifetime valuation to support marketing decision making. Journal of Direct Marketing, 11(4), 6–13.
Helsen, K., & Schmittlein, D. C. (1993). Analyzing duration times in marketing: Evidence for the effectiveness of hazard rate models. Marketing Science, 11(4), 395–414.
Hirschman, A. O. (1970). Exit loyalty and voice. Cambridge, MA: Harvard University Press.
Hogan, J. E., Lemon, K. N., & Libai, B. (2003). What is the ‘true value of a lost customer? Journal of Service Research, 5(3), 196–208.
Kesler, L. (1985, October 17). Steak company welcomes customers’ grilling. Advertising Age, 36(7).
Kumar, V. (2008a). Managing customers for profit: Strategies to increase profits and build loyalty. Upper Saddle River, NJ: Wharton School.
Kumar, V. (2007) “Customer Lifetime Value: The Path to Profitability”, NOW Publishers, Inc., The Netherlands.
Kumar, V., & Karande, K. (2000). The effect of retail store environment on retailer performance. Journal of Business Research, 49(2), 167–181.
Kumar, V., & Ramani, G. (2003–2004). Taking CLV analysis to the next level: A multistep approach to better understanding customer value. Journal of Integrated Communications, 2004, 27–33.
Kumar, V., Shah, D., & Venkatesan, R. (2006). Managing retailer profitability: One customer at a time! Journal of Retailing, 82(4), 277–294.
Kumar, V., Venkatesan, R., Bohling, T. R., & Beckmann, D. (2008). The power of CLV: Managing customer lifetime value at IBM. Marketing Science, 27(4), 585–599.
Li, S. (1995). Survival analysis. Marketing Research, 7(Fall), 17–23.
Quick, R., (2000, April 18). New study finds hope for internet retailers. Wall Street Journal, A2.
Reichheld, F. F., & Sasser, W. E. (1990). Zero defections: Quality comes to services. Harvard Business Review, 68(5), 105–111.
Reichheld, F. F., & Teal, T. (1996). The loyalty effect. Boston: Harvard Business School Press.
Reinartz, W., & Kumar, V. (2000). On the profitability of long-life customers in a non-contractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64(4), 17–32.
Reinartz, W., & Kumar, V. (2002). The mismanagement of customer loyalty. Harvard Business Review, 80(7), 86–94.
Reinartz, W., & Kumar, V. (2003). The impact of customer relationship characteristics on profitable lifetime duration. Journal of Marketing, 67(1), 77–99.
Schmittlein, D. C., Morrison, D. G., & Colombo, R. (1987). Counting your customers: Who are they and what will they do next? Management Science, 33(1), 1–24.
Schmittlein, D. C., & Peterson, R. A. (1994). Customer base analysis: An industrial purchase process application. Marketing Science, 13(1), 41–67.
Sheth, J. N., & Parvatiyar, A. (1995). Relationship in consumer markets: Antecedents and consequences. Journal of the Academy of Marketing Science, 23(4), 255–271.
Valentino-Devries, J. (2011, April 14). With catalogs, opt-out policies vary. The Wall Street Journal, Web. Accessed on July 26, 2011. Accessed at http://online.wsj.com/article/SB10001424052748703841904576256750393074920.html
Venkatesan, R., & Kumar, V. (2004a). A customer life time value framework for customer selection and optimal resource allocation strategy. Journal of Marketing, 68(4), 106–125.
Venkatesan, R., & Kumar, V. (2004b). A customer lifetime value framework for customer selection and resource allocation strategy. Journal of Marketing, 68(4), 106–125.
Wyner, G. A. (1999). Customer relationship measurement. Marketing Research: A Magazine of Management and Applications, 11(2), 39–41.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2012 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Kumar, V., Reinartz, W. (2012). Applications of CRM in B2B and B2C Scenarios (Part I). In: Customer Relationship Management. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-20110-3_15
Download citation
DOI: https://doi.org/10.1007/978-3-642-20110-3_15
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-20109-7
Online ISBN: 978-3-642-20110-3
eBook Packages: Business and EconomicsBusiness and Management (R0)