Strategic

Marketin
g

List of Articles
Valuing Customers

SUNIL GUPTA, DONALD R. LEHMANN, and JENNIFER AMES STUART (2004)

Journal of Marketing Research 7 Vol. XLI (February 2004), 718
Modeling Customer Lifetime Value

GUPTA, SUNIL, BOMINIQUE M. HANSSENS, BRUCE HARDIE, WILLIAM KAHN, V. KUMAR,

NATHANIEL LIN (2006)
Journal of Service Research, Volume 9, No. 2, November 2006 139-155
The Diffusion of Services

BARAK LIBAI, EITAN MULLER, and RENANA PERES (2009)

Journal of Marketing Research Vol. XLVI (April 2009), 163175
Expanding the Role of Marketing: From Customer Equity to Market

Capitalization
V. Kumar & Denish Shah (2009)
Journal of Marketing Vol. 73 (November 2009), 119136
Linking Customer and Financial Metrics to Shareholder Value: The Leverage

Effect in Customer- Based Valuation

Christian Schulze, Bernd Skiera, & Thorsten Wiesel
Journal of Marketing Volume 76 17 (March 2012), 1732

Purpose
Understanding the CLV concept
Customer value & Firm value

Expanding the role of marketing and the

marketer
Aligning the CMO s objectives with the

CFOs Agenda
Managing customers profit and cash

flow risks

Sustainability of stock price gains

Applicability of framework
Efficient market theory
Investing in customers versus investing in

brands

Purpose:
Conceptual frame work
Theoretical frame work

Drivers of shareholder value

Results of CBV's
Managerial implications
Research implications

Mostly Used Terms

Margin (products selling price - cost of

production)
Acquisition Cost (to convincing)
Retention Cost (to keep)
Cross selling/Expansion (Offer)
Customers Dis-adoption/ Churn (Customer leave
)

Financial Value ------- Intangible Assets

Critical aspect of firm (Customer)
Value of Customers = Discounted Future

Earnings

Better method for forecasting the future stream

of income when it is not possible to make

opinion about Negative earnings
Provide insights about marketing Retention
Customer related expenses are Investments

Data:

Capital One ----- Traditional Firm

Amazon.com---- Internet Companies
Ameritrade ----- Internet Companies
eBay ------------- Internet Companies
E*Trade --------- Internet Companies

Standard
Financial Models
(N/A)
Negative
Earnings

Quarterly data ( Annual Reports, 10K, 10Q)

1996-97 to March 2002

 Customer Cohorts at time 0

Model

ATTRITION -------- Growth of Service Market

Attrition ------ Terminate Relationship

Lost of Good
Not expected to return
(Berger &Nasr 1998)
2004)

Migration Approach
May be return
(Rust, Lemon and Zeithaml

7 Firms from 4Services Areas;

Mobile Phone ------------------ SK Telecom
Mobi Star
Online Brokerage -------------- E*Trade
Online Book Retailer ---------Barnsamdnoble.com
Amazon.com
Satellite Radio Provider ------- XM Satellite Radio
Sirus Satellite Radio

Finding:
New adopter ---------- Outward stream
Category Level -------- Evolution of new services
Regaining customers

Competitive Level ---- Churn & disadoption

Disaggregate data ---- CE
Firm based data ------ CE
6 firms ------- CE ------ Stock market values
(difference 18%)

Attrition ---------------- Role

Amazon ---------------- Overvalued(not fit)

2-Day discussions
Thought Leadership Conference
Organized by: University of Connecticut
Discussion Group: Mix of Academics &

Practitioners

FIRM VALUE

CLV / CE

CUSTOMER
ACQUISITION

CUSTOMER
RETENTION

MARKETING PROGRAMS

CUSTOMER
EXPANSION

Present value of all future profits

Individual/Segment of Customers
High/Low Profitable Customers
Possibilities to defect a Competitor
Reinartz and Kumar 2003

RFM Models
Direct Marketing programs
To improve the response rate
Past purchase behavior of customers
Recency-------Frequency-------Monetary value

Probability Models
Observed Behavior------Latent Behavioral

Characteristics(unobserved)
To compute CLV---------Alive or Inactive
YES------Non-Contractual setting----Passion Purchase-----Any
Time(Amazon)
NO------ Non-Contractual setting----Fixed Transaction Time
(Conferences)
NO------Contractual setting

Econometric Models
Philosophy of Probability Model
Customer Acquisition, Retention, Expansion (Cross Selling)

Customer Acquisition
First Time Purchase by NEW Customers
Focus on the factors that INFLUENCE
Logit/Probit Model

(Gensch 1984: Thomas 2004: Thomas, Blattberg and Fox 2004

Low Price ----------- INC. Acquisition (Thomas, Blattberg, Fox
2004)
Price Discounts: (Anderson and Semester 2004)
Promotions -------- INC. Acquisition ------ Long Term (Levis 2003)
+ve impact --------- Long term Profitability ---- First time Buyer
-ve impact --------- Long term Profitability ----- Established
Buyers

Customer Retention

Alive or Inactive (eBay)

Hazard Model ------- Lost for Good
Markov Model ------- Always a share
5% INC. in retention ----- INC. Profitability by 25% to 85%
(Reichheld and Sasser 1990)

Persistence Models
Focus modeling behavior b/w Acquisition, retention, cross

selling
Dynamic system

Computer Science ModelsBased Models

Projection-Pursuit Model
Neural Network Model
Decision Tree Model
Spline-Based Models:
Generalized Additive Model (GAM)
Multivariate Adaptive Regression Model (MARS)
Clasification and regression Tree (CART)
Support Vector Machines (SVM)
Not known in marketing literature

Diffusion/Growth Models
Used ------- Customer selection, Campaign Management,

Segmentation & Targeting

Model ----- Disaggregated data
Word of Mouth

Moving Beyond the Limits of Transaction Data

2. Moving from a Customer to a Portfolio of Customers
3. Reconciling Top-Down VS Bottom-up Measurements
4. Cost Allocations
5. Developing Incentive Scheme that encourage Globally
Optimal Behavior
6. Understanding the Limits of CLV and CE
7. Understanding the Scope of Application
8. Appreciating the Limits of our Theory-Based Models
9. Understanding How to Model Rare Events
10. Recognizing the Danger of Endogeneity
11. Accounting for Network Effects
1.

What is Value the Customer/Customer Lifetime

Value?

Present value of all future profit

Holistic approach
Customers different by their Segments
High/Low Profitable customers
Check the Acquisition of the customers
Calculate the value of Current & Future Customers

(CE)
Monitor the Impact of Marketing Strategies
Business Sectors

Banking Sector
Insurance Companies
Telecommunication Online Business
Services Sector
Financial Companies
(Shareholders)

Thank you for your Patience