Predicting Customer Lifetime Value in Multi-Service Industries

48 Pages Posted: 26 Aug 2006

See all articles by Bas Donkers

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Peter C. Verhoef

University of Groningen - Department of Marketing & Marketing Research

Martijn de Jong

Tilburg University - Department of Marketing

Date Written: 29 2003 4,

Abstract

Customer lifetime value (CLV) is a key-metric within CRM. Although, a large number of marketing scientists and practitioners argue in favor of this metric, there are only a few studies that consider the predictive modeling of CLV. In this study we focus on the prediction of CLV in multi-service industries. In these industries customer behavior is rather complex, because customers can purchase more than one service, and these purchases are often not independent from each other. We compare the predictive performance of different models, which vary in complexity and realism. Our results show that for our application simple models assuming constant profits over time have the best predictive performance at the individual customer level. At the customer base level more complicated models have the best performance. At the aggregate level, forecasting errors are rather small, which emphasizes the usability of CLV predictions for customer base valuation purposes. This might especially be interesting for accountants and financial analysts.

Keywords: database marketing, interactive marketing, forecasting, customer lifetime value, customer relationship management, customer segmentation, value

JEL Classification: M, M31, C44, C53, G17

Suggested Citation

Donkers, Bas and Verhoef, Peter C. and de Jong, Martijn, Predicting Customer Lifetime Value in Multi-Service Industries (29 2003 4,). ERIM Report Series Reference No. ERS-2003-038-MKT. Available at SSRN: https://ssrn.com/abstract=411666

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
Rotterdam, NL 3000 DR
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://people.few.eur.nl/donkers/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://people.few.eur.nl/donkers/

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Peter C. Verhoef (Contact Author)

University of Groningen - Department of Marketing & Marketing Research ( email )

Netherlands

Martijn De Jong

Tilburg University - Department of Marketing ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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