Operations Research Seminar

The Icon of Customer Lifetime Value - A Data Mining Approach

Dr. Issic Leung
Business Model Architect
Consumer Marketing, PCCW

Abstract

It has been a common consent in the commercial world that enterprise survival depends on not only the cost control but also the ability of capturing recurrence revenue under the current competitive environment, especially the volume driven type revenue generated by individual customer in IT industry. The effectiveness of target marketing then becomes the tool of achieving this goal. Because of that, marketing expects need to identify the profile of customers from whom we have to estimate their value in the context of company’s service onto them. A question has always been asked without concrete answer: ‘Does it worth to spend so much marketing dollars on a customer, via advertisement, special offers like discount, merchants offer etc?’ To answer such question we need firstly sort out the future value of such profitable customer. Since then customer lifetime value (CLV) is being noted.

In their paper, Kotler and Armstrong (1996) defined a profitable customer as "a person, household, or a company whose revenues over time exceed, by an acceptable amount, the company costs of attracting, selling, and servicing that customer." This excess is called customer lifetime value.

Through a mathematical model, Berger and Nasr (1998),

Image30

Where,

C = Yearly gross contribution = Revenue - Cost of sales
M = Promotion cost per customer per year
n = The length in years of period over which cash flows are to be projected
r = The Yearly retention rate
d = Yearly discount rate (appropriate for marketing investment),

the speaker will briefly walk through the rationale and approach in CLV estimation using Data Mining technique. A life example, with possible development, will be presented.
 
 

Date:

September 6, 2001 (Thursday)

Time:

4:00pm

Place:

Room 517, Meng Wah Complex


 
 

 

All are welcome