Customer lifetime value: Marketing models and applications

Customer lifetime value has been a mainstay concept in direct response marketing for many years, and has been increasingly considered in the field of general marketing. However, the vast majority of literature on the topic (a) has been dedicated to extolling its use as a decision-making criterion; (b) has presented isolated numerical examples of its calculation/determination; and (c) has considered it as part of the general discussions of profitability and discussed its role in customer acquisition decisions and customer acquisition/retention trade-offs. There has been a dearth of general modeling of the topic. This paper presents a series of mathematical models for determination of customer lifetime value. The choice of the models is based on a systematic theoretical taxonomy and on assumptions grounded in customer behavior. In addition, selected managerial applications of these general models of customer lifetime value are offered.