1) In his note “Embracing lifetime value,” Seth Godin recommends: “Instead of comparing what you invest to the benefit you receive from the first bill, the first visit, the first transaction, it's important to not only recognize but embrace the true lifetime value of one more customer.”
http://sethgodin.typepad.com/seths_blog/2009/11/embracing-lifetime-value.html
2) Robert Blattberg has observed however that the customer lifetime value concept defies easy prediction. His attempts to predict customer lifetime value consistently resulted in two types of errors: “A false positive occurred when the model predicted that a customer would be a future best customer when in fact the customer was not. For example, a customer who used to conduct quite a bit of business with a company was predicted to continue to be a great customer in the future. However, if the customer lost her job, she might not have been able to spend as much, and thus did not actually continue to be among the best customers.
Similarly, false negatives occurred when customers were not predicted to be especially valuable, even though their future purchasing behavior proved to be extremely beneficial to the company. For example, a customer who did little or no business in the past due to lack of disposable income was predicted to be a poor customer in the future. But if the customer took a new, lucrative job, he could actually become a potential gold mine for the company.”
Blattberg therefore recommends: “… allocate rewards based on actual future behavior rather than predicted future behavior. The distinction was subtle but important. Rather than trying to guess which customers would be valuable, Malthouse and Blattberg encouraged companies to wave a carrot in front of all of their customers and reward those who behaved in the desired way. This is what airlines do with miles programs— any customer who flies a certain number of miles gets the reward. Credit cards and supermarkets that offer cash-back bonuses also follow this approach.”
http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/predicting_customer_lifetimevalue
3) Kumar and his co-authors recommend extending the concept by calculating both Customer Lifetime Value and Referral Value and segmenting customers by both CLV and CRV: “Knowing both enables you to segment your customers into four constituent parts: those that buy a lot but are poor marketers (which they term Affluents); those that don't buy much but are very strong salespeople for your firm (Advocates); those that do both well (Champions); and those that do neither well (Misers). In a series of one-year experiments, the authors demonstrated the effectiveness of this segmentation approach.”
http://harvardbusiness.org/products/R0710J/R0710Jp4.pdf
4) Finally, Oded Netzer and his co-authors recommend managing not only high-lifetime-value customers but also “dormant” and “occasional” customers. Their research concludes that: “Marketers often lavish attention on their best customers, but … it may be more cost effective to increase their spending on clients who only occasionally use their products or services.”
http://www.gsb.stanford.edu/news/research/seenu_customers.html
