Tài liệu Customer Relationship Management: A Database Approach - Class 6 pptx

Customer Relationship Management:A Database Approach MARK 7397 Spring 2007 James D... • Computation of Customer Profitability• Past Customer Value of a customer Where i = number represen

Customer Relationship Management:

A Database Approach

MARK 7397 Spring 2007

James D Hess C.T Bauer Professor of Marketing Science

375H Melcher Hall

jhess@uh.edu

713 743-4175

Class 6

• Computation of Customer Profitability

• Past Customer Value of a customer

Where i = number representing the customer, r = applicable discount rate

n = number of time periods prior to current period when purchase was made

GCin = Gross Contribution of transaction of the i th customer in the n th time period

• Since products/services are bought at different points in time during the customer’s lifetime, all transactions have to be adjusted for the time value of money

• Limitations: Does not consider whether a customer is going to be active in the future Also does not incorporate the expected cost of maintaining the customer in the future

Past Customer Value









N 1 n

n

in * ( 1 r ) GC

Spending Pattern of a Customer

The above customer is worth $302.01 in contribution margin, expressed in net present value in May dollars By comparing this score among a set of customers a prioritization

is arrived at for directing future marketing efforts

302.01486

5 ) 0125

0 1 ( 240

4 ) 0125

0 1 ( 15

3 ) 0125

0 1 ( 15

2 ) 0125

0 1 ( 9 ) 0125

0 1 ( 6

Scoring Value

Customer

Past

0.3 Amount X Purchase

(GC) Contribution

Gross

= +

+ +

+

+ +

+ +

+

=

´

=

Lifetime Value metrics (Net Present Value models)

• Multi-period evaluation of a customer’s value to the firm

Recurring

Revenues

Recurring

costs

Contribution margin

Lifetime of a customer

Lifetime Profit

Acquisition cost

LTV Discount

rate

Calculation of Lifetime Value: Simple Definition

where LTV = lifetime value of an individual customer in $, CM = contribution margin,  = interest rate, Rr = retention rate, so Rrt=survival rate for t periods

• LTV is a measure of a single customer’s worth to the firm

• Used for pedagogical and conceptual purposes

t T

1 t

t

1

Rr CM





















Rrt

1/(1+)t

0

LTV: Definition Accounting for Acquisition Cost and Retention Probabilities

Where, LTV = lifetime value of an individual customer in $

Rrk = retention rate

П = Product of retention rates for each time period from 1 to T,

AC = acquisition cost

T = total time horizon under consideration Assuming that T   and that the contribution margin CM does not vary over time,

AC CM

Rr LTV

T

t

it t

k





























1



t k

AC Rr

CMi









1

Rr

Note: many typos on page 127

To Calculate Customer Lifetime Value

1 You must be able to forecast profit contributions

2 You must understand the cost of marketing

3 You must be able to forecast retention rates of customers (since if the customer has abandoned the firm no profits will flow.)

4 It is possible that customers will “churn.” That is, they may leave and then return later

5 The contribution of a customer may be causally tied to churn and abandonment, making this trickier than it looks

6 You need to understand NPV calculations

LTV: Definition Accounting for Varying Levels of Contribution Margin

Where, LTV = lifetime value of an individual customer i in $, S = Sales to customer i, DC = direct cost of products purchased by customer i, MC = marketing cost of customer i

t T

1 t

it it

1 MC

DC S

LTV 

























Recall the Cell2Cell data from last week

CMi=(67.58+.595*Monthsi-7.615*Marriedi-.046*EqpDaysi)*ContribRate

Abandonment versus Churn:

Lost for Good or Missing in Action

States of Customer: S0 = bought this period

S-1 = last bought one period before

State Transition (Markov Matrix)

Before

S0 S-1

S-1

S0 After

0.7

0.0

= T

Pt=(Pt,0,1-Pt,0)’ Probability that at time t you are in the two states

Lost for Good

Abandonment versus Churn

(continued)

Before

S0 S-1

S-1

S0 After 0.7

0.3 1.0

0.0

Pt= T Pt-1 = T T Pt-2 = T T …T P0

Tk = 0.7

k

1.0

0.0 1-0.7k

This is the type of calculation we did above

Abandonment versus Churn:

just “Missing in Action”

Before

S0 S-1

S-1

S0

After

0.7

0.1

S-2

S-2

0.0

1.0

0.0

0.9 0.0

If you haven’t bought in two periods, you are gone, but you could appear and disappear from one period to the next

Abandonment versus Churn: just “Missing in Action”

.52

.07

0.0

1.0

0.0

0.9 27

T2 =

.38

.05

0.0

0.0

T3 =