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Key MBA Models by Dr. Julian Birkinshaw, Ken Mark

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11

Customer lifetime value

One useful way of thinking about your customers is as an investment: you invest in them early on, to attract their custom and to generate loyalty, then over time you recoup that investment with a steady flow of sales. Customer lifetime value is a way of modelling this concept in a quantitative way. It has important implications for how you allocate resources at different stages in your relationship with customers.

When to use it

  • To estimate the potential future value of your customers.
  • To decide how much to invest in customer loyalty programmes and customer relationship management systems.
  • To make corrections if you are losing customers.

Origins

The notion of customer lifetime value was developed in the late ...

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