Customer Lifetime Value
CUSTOMER LIFETIME VALUE: MARKETING MODELS AND APPLICATIONS
Paul D. Berger Nada I. Nasr
ABSTRACT Customer lifetime value has been a mainstay concept in direct response marketing for many years, and has been increasingly considered in the field of general marketing. However, the vast majority of literature on the topic (a) has been dedicated to extolling its use as a decisionmaking criterion; (b) has presented isolated numerical examples of its calculation/determination; and (c) has considered it as part of the general discussions of profitability and discussed its role in customer acquisition decisions and customer acquisition/retention trade-offs. There has been a dearth of general modeling of the topic. This paper presents a series of mathematical models for determination of customer lifetime value. The choice of the models is based on a systematic theoretical taxonomy and on assumptions grounded in customer behavior. In addition, selected managerial applications of these general models of customer lifetime value are offered.
PAUL D. BERGER is Professor and Chairman of the Marketing Department at the School of Management, Boston University.
NADA I. NASR is a doctoral student in Marketing at the School of Management, Boston University.
1998 John Wiley & Sons, Inc. and Direct Marketing Educational Foundation, Inc. CCC 1094-9968/98/010017-14 s JOURNAL OF INTERACTIVE MARKETING VOLUME 12 / NUMBER 1 / WINTER 1998
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JOURNAL OF INTERACTIVE MARKETING
INTRODUCTION
Since the early eighties, the field of marketing has undergone a major directional change in both its theory and practice: a turn toward relationship marketing (Morgan & Hunt, 1994). At the core of relationship marketing is the development and maintenance of long-term relationships with customers, rather than simply a series of discrete transactions, achieved by creating superior customer value and satisfaction. Ideally, a loyalty
Paul D. Berger Nada I. Nasr
ABSTRACT Customer lifetime value has been a mainstay concept in direct response marketing for many years, and has been increasingly considered in the field of general marketing. However, the vast majority of literature on the topic (a) has been dedicated to extolling its use as a decisionmaking criterion; (b) has presented isolated numerical examples of its calculation/determination; and (c) has considered it as part of the general discussions of profitability and discussed its role in customer acquisition decisions and customer acquisition/retention trade-offs. There has been a dearth of general modeling of the topic. This paper presents a series of mathematical models for determination of customer lifetime value. The choice of the models is based on a systematic theoretical taxonomy and on assumptions grounded in customer behavior. In addition, selected managerial applications of these general models of customer lifetime value are offered.
PAUL D. BERGER is Professor and Chairman of the Marketing Department at the School of Management, Boston University.
NADA I. NASR is a doctoral student in Marketing at the School of Management, Boston University.
1998 John Wiley & Sons, Inc. and Direct Marketing Educational Foundation, Inc. CCC 1094-9968/98/010017-14 s JOURNAL OF INTERACTIVE MARKETING VOLUME 12 / NUMBER 1 / WINTER 1998
17
/ 8S0F$$0258
12-24-97 10:12:38
dira
W: Dir Mktg
JOURNAL OF INTERACTIVE MARKETING
INTRODUCTION
Since the early eighties, the field of marketing has undergone a major directional change in both its theory and practice: a turn toward relationship marketing (Morgan & Hunt, 1994). At the core of relationship marketing is the development and maintenance of long-term relationships with customers, rather than simply a series of discrete transactions, achieved by creating superior customer value and satisfaction. Ideally, a loyalty