Database Reference
In-Depth Information
services. Because of the co-participation of the customer in the production and delivery of the
offering and services, inherently, there is an assured minimum level of customer satisfaction.
ATM systems, Self-Service Restaurants, etc., are typical examples of value co-creating systems,
but the best exemplars of the value co-creating systems are the Internet-based applications (also
see earlier Sections 1.2.6 “Customer Relationships” and 15.2 “Aspects of Enterprise Value”).
1.2.6.2 Customer Lifetime Value
As mentioned earlier, the Customer Lifetime Value (LTV) is measured typically on an individual
customer basis by tracking all transaction and expense details. This information is used to project
the Net Present Value of the future revenue streams from this customer throughout the envisaged
lifetime of this customer.
The kinds of data that are essential for calculating LTV include
1. Customer Transaction History
a. What was the revenue generated from the purchase?
b. What was purchased?
c. How much was purchased?
d. When was it purchased?
e. Where was it purchased?
f. What were the special offers/promotions?
g. What was returned/canceled?
2. Revenue History
a. Initial revenue
b. Incremental revenue
c. Service and support revenue
3. Promotion History
4. Costs
a. Acquisition costs
b. Product costs
c. Incremental sales costs
d. Incremental product costs
e. Ongoing service and support costs
A general formula for LTV can be defined as follows:
Customer LTVValue (Initial Revenue-Costs)
=
+
NetPresent Value(Loyalty*(FutureRevenue -Costs))
+
NetPresent Value(Loyalty*Influence Value)
The LTV for various customers may also be helpful in identifying several groups of customers who
have similar patterns of behavior, which in turn could be helpful in tailoring value propositions to
such identified groups of customers.
