Segmentation and Lifetime Value Models Using SAS

1Strategic Foundations forSegmentation and Lifetime ValueModels

Contents

1.1 Introduction

1.2 A process for increasing CLV

1.3 A taxonomy of CLV models

1.1 Introduction

Customer lifetime value (CLV) is the discounted sum of future cash flows attributed to the relationship with a customer (Pfeifer et al., 2005). In simple terms, CLV estimates the “profit” that an organization will derive from a customer in the future. It is an important concept because one of the main goals of for-profit organizations is to maximize CLV. Most models calculate an expected CLV given by:

$\text{CLV}={\displaystyle \sum _{t=1}^{\infty }\frac{E(V_t)}{{(1+d)}^{t-1}},(1.1)}$

where V_t is the customer’s net contribution in period t and d is the discount rate (Blattberg et al., 2009).

     One of the first applications of ...