The data set contains the purchase history of 100 customers for certain hardware, software, and services products during the period 2001 - 2004. The data is organized in such a way that the date of purchase, product purchased, product category, and purchase amounts are given for each customer for each purchase occasion. For instance, customer 1 purchased Desktop PC (hardware category) for $500 during February 2001 (indicated by Feb-01). In addition to the transaction history, the data set also includes information such as number and type of marketing touches, and the contribution margin for each product. This dataset is given in the excel file "CLV_data.xls".
Projection of Contribution Margin
In order to project contribution margin in a given year, we need to build the model for contribution margin. This is done by doing a linear regression with 'Contribution margin in 2004' as dependent variable and variables like 'tenure till December 2003', 'average contribution margin per year for the period 2001-2003', and 'the average purchase frequency'. This model using the available data showed the following relationship as significant.
PredCM2004 = -17 + 0.76 * AvgCM2003 + 4*Tenure0103 + 23*Avg_Purchase_Freq, where
PredCM2004 = Predicted Contribution Margin in 2004
AvgCM0103 = Average CM (per year) for 2001-2003
Tenure0103 = Tenure till December 2003.
Applying this model, the predicted contribution margin in 2005, 2006, and 2007 can be computed. The values of predicted contribution margins are obtained by simply entering the values for Average CM and Tenure for appropriate time periods in the worksheet "Enter values" in the excel file named "CLV_Cal.xls".
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The CLV calculator calculates the lifetime value of a customer . You have 2 options to use the CLV Calculator
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V. Kumar (VK) is the Regents Professor, Lenny Distinguished Chair Professor of Marketing, Executive Director, Center for Excellence in Brand & Customer Management, and Director, Ph.D. Program in Marketing, J. Mack Robinson College of Business, Georgia State University. He has been recognized with seven lifetime achievement awards in Marketing Strategy, Inter-Organizational Issues, Retailing, Business to Business Marketing, and Marketing Research from the AMA and other professional organizations, the Paul D Converse Award, the Sheth Foundation/ Journal of Marketing Long term Impact Award, and the Gary L Lilien ISMS-MSI Practice Prize Award.
He has published over 200 articles in many scholarly journals in marketing including the Harvard Business Review, Sloan Management Review, Journal of Marketing, Journal of Marketing Research, Marketing Science, Management Science and Operations Research. His books include Managing Customers for Profit, Customer Relationship Management (CRM), Customer Lifetime Value, Marketing Research, Statistical Methods in CRM, and International Marketing Research.
He has won several awards for his research publications in scholarly journals including the Don Lehmann Award thrice for the best paper published in the Journal of Marketing/Journal of Marketing Research in a 2-year period, the MSI/Paul H Root Award thrice for the Journal of Marketing articles contributing to the best practice of marketing, the Robert Buzzell Award for the best paper published by the Marketing Science Institute, the Davidson Award for the best paper published in the Journal of Retailing, the Outstanding Paper Award for the best paper published in Forecasting form the International Institute of Forecasters, and the Best Runner-Up Award for the paper published in the Journal of Interactive Marketing. VK was also awarded the Sheth Foundation Best Paper Award for his paper published in the Journal of the Academy of Marketing Science.
VK leads the marketing science to marketing practice initiative at the INFORMS Society for Marketing Science and has worked with Global Fortune 1000 firms to maximize their profits. He also serves as the AE and serves on the Editorial Review Board of many scholarly journals in Marketing. VK spends his free time visiting business leaders to identify challenging problems to solve. He plays Tennis and Basketball to relieve his stress arising out of being in academics. Finally, VK has been chosen as a Legend in Marketingalong with Phil Kotler, Paul Green and Jag Sheth where his work is published in a 10 volume encyclopedia with commentaries from scholars worldwide.
Whilst corporations continue to strive to improve customer loyalty and customer profitability, the conventional customer profitability model offers a great opportunity for enhancement. Based on my experience over the last two decades, across three different industries, quite often, the link between customer satisfaction, customer loyalty and customer profitability is tenuous. Secondly, since customer satisfaction and loyalty are measured across the customer base, corrective actions are designed uniformly for all customers. However, neither the customers nor the customer behavior is uniform!
With organizational resources being scarce and improvement of marketing ROI being a key challenge for business managers, it is imperative to have a fresh perspective to customer relationship management (CRM) with customer profitability as its focus and the notion that different customers should be managed and satisfied differently. This profit-based strategy draws upon robust CRM research that lays emphasis on future customer value. The future value of customer profitability can be measured through customer life-time value (CLV) metric. Dr. Kumar has developed innovative quantitative approaches to calculate CLV, which can be leveraged for CRM decisions relating to customer acquisition, retention and attrition.
CLV is a powerful tool that could potentially be the source of competitive advantage for organizations and provide the armory to win in the market-place. This book is recommended for business managers, interested in nurturing long-lasting relationships with customers to drive profitable growth.
Chief Marketing Officer, HSBC Bank Middle East Limited