Clv: More than Meets the Eye

Marketing Research, Summer 2006

8 Pages Posted: 12 Jul 2006

See all articles by Peter Fader

Peter Fader

University of Pennsylvania - Marketing Department

Bruce Hardie

London Business School

Ka Lok Lee

University of Pennsylvania - Marketing Department

Abstract

Calculating customer lifetime value is complex, and the use of familiar regression-type models - which attempt to forecast future behavior based only on observable measures - is problematic and inadequate. A better approach is to perform the calculations using a probability model of buyer behavior in which observed behavior is viewed as the outcome of a random process governed by latent characteristics. Companies that are serious about valuing their customer base must embrace this unconventional yet superior method.

Keywords: customer lifetime value, probability models

Suggested Citation

Fader, Peter and Hardie, Bruce and Lee, Ka Lok, Clv: More than Meets the Eye. Marketing Research, Summer 2006, Available at SSRN: https://ssrn.com/abstract=913338

Peter Fader (Contact Author)

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Bruce Hardie

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

Ka Lok Lee

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

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