Clv: More than Meets the Eye

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