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Donovan Pfaff
Department of Electronic Commerce Johann Wolfgang Goethe-University
Henrik Simon
Department of Electronic Commerce Johann Wolfgang Goethe-University
SAP AG 2002
Overview
Definition
Calculation Model
Examples
Summary
Definition
SAP AG 2002
Calculation Model
Examples
Summary
Origin in Direct marketing: Method of customer segmentation for marketing campaigns Consequence: Only these customers should be attended to, whose trade-off of costs and customer retention effect is positive Long-term oriented method
SAP AG 2002
Customer 1
Today
SAP AG 2002
Overview
Definition
Calculation Model
Examples
Summary
Definition
SAP AG 2002
Calculation Model
Examples
Summary
SAP AG 2002
T T t t CLVi = GCi r t / (1 + d ) M i r t 1 / (1 + d ) t0 t0
GCi: Mi: T: r: d: t:
Amount of coverage per customer i Relevant acquistion and marketing costs per customer i Planning horizon Customer retention rate Discount rate Time index
Source: P. Berger/N. Nasr (1998), Customer Lifetime Value: Marketing Models and Applications
SAP AG 2002
Overview
Definition
Calculation Model
Examples
Summary
Definition
SAP AG 2002
Calculation Model
Examples
Summary
Customers Retention Rate Orders/year Average Order Size Total Revenue Direct Cost Costs Acquisition Cost $630 Total Costs Gross Profit Discount Rate Net Present Value Profit Cumulative NPV Profit CLV
SAP AG 2002
Source: A.M. Hughes (2001), Using Lifetime Value in Business to Business Marketing
Number of Average Total Sales Sales Customers Annual ($) ($) Ranking Basic User 254 $335.736 $86.202.044 4 Light User 15.442 $13.851 $213.887.142 1 Heavy User 44 $2.314.159 $101.822.996 3 Top User 612 $299.007 $182.992.284 2 Others 3.613 $2.176 $7.861.888 5 Total 19.965 $29.695 $592.857.254
Lifetime CLV Value ($) Ranking $145.067 2 $5.914 4 $988.146 1 $127.676 3 $929 5 $12.680
Source: A.M. Hughes (2001), Using Lifetime Value in Business to Business Marketing
SAP AG 2002
SAP AG 2002
Costs per project Improvement of customer satisfaction, customer retention Improvement of customer lifetime value Improvement of aggregated customer values (segment ) Return on investment (project)
SAP AG 2002
Overview
Definition
Calculation Model
Examples
Summary
Definition
SAP AG 2002
Calculation Model
Examples
Summary
Summary
Customer Lifetime Value means the economic value of customer relations during the whole period of relation between customer and company. Therefore the Customer Lifetime Value is a very important business performance figure. As it allows to measure the value of a customer of a company in monetary meanings for the first time, Customer Lifetime Value is of increasing importance in various industries. Only a few financial figures are needed to work out the CLV of a customer (i.e. margin, planning horizon, discount rate, etc.). Equivalent to the brand equity of a firm you can easily work out its customer equity by aggregating all CLV.
SAP AG 2002
SAP AG 2002
SAP AG 2002