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Modeling Customer Lifetime Value

Harvard University

Dominique Hanssens

University of California, Los Angeles; Marketing Science Institute

Bruce Hardie

London Business School

Wiliam Kahn

Capital One

V. Kumar

University of Connecticut

Nathaniel Lin

IBM

Nalini Ravishanker

University of Connecticut

S. Sriram

University of Connecticut

As modern economies become predominantly service-based, companies increasingly derive revenue from the creation and sustenance of long-term relationships with their customers. In such an environment, marketing serves the purpose of maximizing customer lifetime value (CLV) and customer equity, which is the sum of the lifetime values of the company’s customers. This article reviews a number of implementable CLV models that are useful for market segmentation and the allocation of marketing resources for acquisition, retention, and cross-selling. The authors review several empirical insights that were obtained from these models and conclude with an agenda of areas that are in need of further research.

Key Words: customer lifetime value • customer equity • customer retention • probability models • persistence models

Journal of Service Research, Vol. 9, No. 2, 139-155 (2006)
DOI: 10.1177/1094670506293810


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