Moving from Customer Lifetime Value to Customer Equity

Publication Type

Journal Article

Publication Date

2009

Abstract

We study the consequence of moving from Customer Lifetime Value maximization to Customer Equity maximization. Customer equity has traditionally been seen as the discounted sum of the lifetime earnings from all current and future customers and thus it has been largely assumed that maximizing customer lifetime value would lead to maximum customer equity. We show that the transition from CLV to CE is not that straightforward. Although the CLV model is appropriate for managing a single non-replaceable customer, the application of a CLV model to the acquisition and valuation of customers as an ongoing concern for the firm leads to sub-optimal customer relationship management and acquisition strategies. This leads the firm following a CLV maximization approach to have a smaller and less profitable customer base than one that follows a CE maximization strategy.

Discipline

Marketing

Research Areas

Marketing

Publication

Quantitative Marketing and Economics

Volume

7

Issue

3

First Page

289

Last Page

320

ISSN

1570-7156

Identifier

10.1007/s11129-009-9067-y

Additional URL

https://doi.org/10.1007/s11129-009-9067-y

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