An investigation of customer lifetime value factors

Steffen Zorn

Research output: ThesisDoctoral Thesis

1372 Downloads (Pure)

Abstract

[Truncated abstract] As market competition grows through deregulation, new technologies and new competitors, churn rates – the percentage of customers quitting their relationship with a company – grow to up to 30% per year. Due to high churn rates, firms must acquire new customers constantly just to stay even. Yet acquiring new customers is costly and not every acquired customer is profitable. Acquisition costs can be higher than customer lifetime revenues, particularly for short-term customers or buyers of small quantities of low-margin products. A long-term customer, usually less costly to serve because of possible exchange efficiencies such as less time to explain a new product, often generates more revenue than recently acquired customers. Yet not every customer merits keeping. Those buying only when discounts are on offer, buying low value items infrequently or whose needs are hard to serve could be unprofitable and harm a firm. Therefore companies seek to identify and reduce the churn rate of valuable customers, and to acquire loyal and profitable customers. As a first step, companies must quantify existing and potential customer's value in order to increase customer lifetime value (CLV), the discounted difference between a customer's revenues and sales costs. This focus on CLV requires a change in company perspective, away from transactions and toward identifying, acquiring and retaining profitable customers. Identifying profitable customers requires knowledge about customer traits relating to high profitability. Information technology provides voluminous customer data, for example, an individual's revealed preferences rather than intentions. Firms can use this data to identify characteristics of valuable customers to retain profitable customers and to target new prospects with similar characteristics. As customers are a heterogeneous asset, firms should investigate how individual factors such as consumption behaviors and perceptions influence CLV
Original languageEnglish
QualificationDoctor of Philosophy
Publication statusUnpublished - 2010

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