Home Alarm Essay
Goizueta Business School
Emory University
Home Alarm, Inc.:
Assessing Customer Lifetime Value
Marketers … have assembled vast databases identifying their customers and their buying habits. With such information, companies now believe it’s as important to reach the right people as it is to reach lots of people.
- Business Week, September 23, 1991
It was late one afternoon in May and Kevin Starke, the VP of Marketing for Home Alarm, had just returned to his office after listening to a presentation by a team of students at Goizueta
Business School. Home Alarm was one of the largest privately held alarm security services companies in the US. The company had grown rapidly over the last 10 years and now had more than 80,000 residential and commercial customers. Home Alarm offered …show more content…
The implication was clear to Kevin: perhaps new residential customers should be strongly encouraged to sign up for auto-pay; it might even be worthwhile trying to convert existing customers to auto-pay. Regrettably, while the students had presented evidence that customer on auto-pay were less likely to churn, the students had not been able to quantify how important the effect was. In particular, Kevin wanted to know: how much more profitable is a customer on auto-pay than one who does not use auto-pay? The answer to this question seemed key to Kevin because it would tell him how much he could spend on salesperson and customer incentives in order to sign up customers for auto-pay. Before he brought the idea to his CEO, Kevin wanted to make sure there was enough money in auto-pay to make it worthwhile for the company.
Kevin knew he had to calculate the added value of customer with auto-pay. However, if what the students had said about churn was true, he knew that it would not be enough to compare the current revenue of the two groups. Since the effect of auto-pay was to retain customers longer, any difference in the value of the customers would only become
Emory University
Home Alarm, Inc.:
Assessing Customer Lifetime Value
Marketers … have assembled vast databases identifying their customers and their buying habits. With such information, companies now believe it’s as important to reach the right people as it is to reach lots of people.
- Business Week, September 23, 1991
It was late one afternoon in May and Kevin Starke, the VP of Marketing for Home Alarm, had just returned to his office after listening to a presentation by a team of students at Goizueta
Business School. Home Alarm was one of the largest privately held alarm security services companies in the US. The company had grown rapidly over the last 10 years and now had more than 80,000 residential and commercial customers. Home Alarm offered …show more content…
The implication was clear to Kevin: perhaps new residential customers should be strongly encouraged to sign up for auto-pay; it might even be worthwhile trying to convert existing customers to auto-pay. Regrettably, while the students had presented evidence that customer on auto-pay were less likely to churn, the students had not been able to quantify how important the effect was. In particular, Kevin wanted to know: how much more profitable is a customer on auto-pay than one who does not use auto-pay? The answer to this question seemed key to Kevin because it would tell him how much he could spend on salesperson and customer incentives in order to sign up customers for auto-pay. Before he brought the idea to his CEO, Kevin wanted to make sure there was enough money in auto-pay to make it worthwhile for the company.
Kevin knew he had to calculate the added value of customer with auto-pay. However, if what the students had said about churn was true, he knew that it would not be enough to compare the current revenue of the two groups. Since the effect of auto-pay was to retain customers longer, any difference in the value of the customers would only become