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Topics and Objectives:
The focus here is on how to actually compute customer lifetime value. In the first assighment due, you will compute the average customer lifetime
value for two groups of customers of a specialty mail-order catalog.
Required Readings:
Customer Profitability, Darden Business Publishingl
Catalogers Use of Lifetime Value,Arthur Hughes.
This short reading shows how to compute the lifetime value of a catalog customer including a template/spreadsheet example. This should come in
handy for the first assignment!
Assignment 1: Tuscan Lifestyles: Assessing Customer Lifetime Value
Assignment Questions:
- What is the expected lifetime value of a customer whose initial purchase is less than $50?
- What is the expected lifetime value of a customer whose initial purchase is $50 or greater?
- Based on these expected lifetime values, what marketing plans might be advisable?
- Do you have any suggestions for Joan for additional lifetime value analyses?
Case Format Instructions:
- Page 1: Spreadsheet showing LTV calculations for <$50 group.
- Page 2: Spreadsheet showing LTV calculations for $50+ group.
- Page 3-4: Discussion (1-2 pages).
- I encourage you to label your calculations, footnote any assumptions, etc. so that I do not have to struggle to unravel where your numbers came
from.
Hints:
- When calculating the LtV, you should count the initial purchase as Year 0 and then do the calculation for 5 further years, where Year 1 is the
first year that gets discounted.
- Any acquisition cost should be included in the calculation at time 0.
Optional Readings:
How Banks Use Profitability Analysis, Arthur Hughes.
Customer Lifetime Value - Powerful Insights into a Company's
Business and Activities, Booz, Allen and Hamilton.
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