Customer Analytics: Definitions, Measurement and Models

Abstract

This chapter provides definitions of the most widely diffused customer metrics, namely Customer Profitability (CP), Customer Lifetime Value (CLV), Customer Equity (CE). We refer to the marketing literature that extensively covers these metrics and illustrate their interrelationships. We point at applications in business settings that have a contractual, subscription-based model and mention potential challenges to compute CLV in non-contractual settings. To illustrate the implementation and impact of customer metrics in a real-world context, we provide a case study focused on the computation of CLV in an Internet-based, subscription-based company. The case presents a simulation that applies cohort analysis in an attempt to fill the void between theoretical CLV models and its implementation in practice. The main rationale is to provide CFOs and CMOs a better understanding of new and latent customer preferences in a typical subscription-based business model by directly observing the customer’s purchase behavior and subsequently linking this data to estimate CLV and firm performance.