Using lifetime value to gain long-term profitability

Abstract

The underlying rationale for a customer life time value (LTV) is well established, with the vast majority of literature citing its strategic benefits to businesses. Yet direct marketers frequently encounter difficulties in implementing its principles because of the lack of a systematic framework. This paper presents a practical guideline by using LTV concepts to assess an entire marketing mix. As such, three fundamental issues are addressed: (1) With a defined analytic goal under given circumstances, a new term ‘LTVA’ (LTV averaging) is proposed to facilitate traditional LTV proceeding; (2) an LTV analysis relies on a constant stream of data to drive its efficiency, which will be specified with an LTV functional data-mart; (3) whereas LTV affects short-term breakeven rate (BE%), a new benchmark, LTV BE%, is derived for leveraging decision powers in terms of long-term profitability.