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The Customer Lifetime Value: Popular Errors and Unvarnished Truths

The customer lifetime value, which for a long time tended to be much more frequent in dissertations than in reality, is finding its way into practical application. The driving force is, in particular, the digital economy. The increasing distribution of the customer lifetime value opens up great opportunities for a targeted acquisition and management of customer relationships. However, it also exposes the fact that certain misunderstandings are widespread. For this blog, we have collected a few of them and contrasted them with the facts.

"Finally the one key figure which replaces all others and can serve as the basis for all marketing decisions!"

Rather not. The customer lifetime value is not the big simplifier for which it is sometimes taken. It sums up the expected turnovers with a customer within a certain period of time, which can vary from a few weeks up to several years according to application and industry. Thus, it provides good services for the evaluation of distribution channels or the measurement of the long-term success of marketing measures. In this process, it will at best modify but not displace older marketing key figures. Due to its name, the customer lifetime value virtually invites connotations with the most diverse ideas of customer value. Anyone wishing to effectively work with the customer lifetime value, however, may not use it as projection surface for his/her own ideas of customer value. As for any other key figure, it is the definition, which specifies the interpretation possibilities, not the name.

"So, in future we will focus our measures on customers with a particularly high customer lifetime value."

This would be a good example of how one can make the wrong decision based on the right key figure. A customer group with a high customer lifetime value certainly is pleasing. However, that does not allow any conclusions on whether this may be further increased by means of marketing measures. However, these are the central questions of a direct marketing strategy based on the customer lifetime value: How can the customer lifetime value be increased? By means of which measures? For which customer group? These questions can only be answered by means of experiments. More precisely: by means of test campaigns and a control group based success measurement. However, this is a topic for a separate article:

Dr. Michael Allgöwer
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Dr. Michael Allgöwer
Management Consultant
Machine learning has been Michael's field of expertise for some time. He is convinced that high-quality machine learning requires an in-depth knowledge of the subject area and enjoys updating this knowledge on a regular basis. His most recent topic of interest is reinforcement learning.
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