Modeling Customer Lifetime Value in Buyer-Seller Relationships

Estimating customer lifetime value is becoming increasingly important in order to identify and invest on prospective profitable customers. This paper reviews three research streams in this field: models for calculation of CLV; models of customer base analysis; normative models of CLV in order to evaluate the usefulness of customer lifetime value as a metric for customer selection and marketing resource allocation. Lifetime value can be used to inform the nature and quality of relationship that an organization might have with customers. Customers who are selected on the basis of their lifetime value provide higher profits in future periods than do customers selected on the basis of several other customer-based metrics. Managers can improve profits by designing marketing communications that maximize CLV.