Answered: Explain the term customer lifetime…

Business

Marketing

Explain the term customer lifetime value?

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter15: Retailing, Direct Marketing, And Wholesaling

Section: Chapter Questions

Problem 1DYMP

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Question

Explain the term customer lifetime value?

Expert Solution

Step 1

Customers are those individuals or businesses who purchase goods or services from another businesses.

Step 2

Customer lifetime value (CLV) is the value represents the total amount of money a customer is expected to spend in business or on products during their lifetime. It is important for marketers because it helps to make decisions about how much money to invest in acquiring new customers and retaining existing ones.

CLV can be calculated as:

$A v e r a g e V a l u e o f P u r c h a s e \times n u m b e r o f t i m e s t h e c u s t o m e r w i l l b u y e a c h y e a r \times A v e r a g e l e n g t h o f c u s t o m e r r e l a t i o n s h i p (i n y e a r s)$

Calculating the CLV for different customers helps in taking decisions in business. CLV helps to determine following things:

How much marketers can spend to acquire a similar customer and still have a profitable relationship
What kinds of products customers with the highest CLV want
Which products have the highest profitability
Who the most profitable types of clients are

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