T2 Customer Lifetime Value

Question 1

examples of marketing’s predictive power

Answer 1

with a (varying) Nr of Facebook likes, it is possible to predict quite accurately:

• a person’s race, gender, sexual orientation
• a person’s future voting behaviour
• a person’s character as described by the Big 5 personality traits

+ from supermarket buying behaviour, you can infer whether a teenage girl is pregnant before her own parents know

Question 2

why to calculate the CLV?

Answer 2

for decision making purposes: is it worth the cost to acquire a high-value customer, or would it make more sense to stick to cheaper clients?

Question 3

3 probability representation concepts for CLV

Answer 3

1. retention or survival rate = prob(cust@T I cust@T-1)
2. churn or hazard rate = 1 - retention rate
3. active probability = product of all retention rates up to T

Question 4

CLV_j formula & meaning & convention

Answer 4

meaning the CLV of customer j, with a planning time horizon T

CLV_j = Sum_0_T v_j,t * a_j,t / (1 + 1)^t

Question 5

CE formula & meaning

Answer 5

Customer Equity = Sum_j=1,J CLV_j

i.e. sum of all clients’ CLVs