The Relevance of Positive Word-of-Mouth Effects on the Customer Lifetime Value - A Replication and Extension in the Context of Start-ups

Abstract

This paper investigates the importance of positive word-of-mouth (WOM) effects on estimating the customer lifetime value (CLV) in start-up businesses. In line with prior research, we assume that, especially in young companies such as start-ups, managers and investors neglect the impact of WOM and therefore underestimate the CLV. To examine this assumption, self-collected WOM data is integrated into calculation of the CLV of a one-yearold online grocery retailer start-up. The CLV of 632 customers is combined with a survey about positive WOM activities. The study shows the high relevance of WOM for start-ups in a noncontractual as well as service setting, thereby calling for integration of WOM into calculation of the CLV.