A Customer Lifetime Value Framework for Customer Selection and Resource Allocation Strategy

TLDR

The authors develop a dynamic customer lifetime value framework to guide customer selection and marketing resource allocation across multiple channels. The framework models proactive marketing contacts and customer relationships to simultaneously maintain or improve CLV. They find that marketing contacts across channels affect CLV nonlinearly, that CLV‑based customer selection yields higher future profits than other metrics, and that the framework can improve profit through optimized resource allocation.

Abstract

The authors evaluate the usefulness of customer lifetime value (CLV) as a metric for customer selection and marketing resource allocation by developing a dynamic framework that enables managers to maintain or improve customer relationships proactively through marketing contacts across various channels and to maximize CLV simultaneously. The authors show that marketing contacts across various channels influence CLV nonlinearly. Customers who are selected on the basis of their lifetime value provide higher profits in future periods than do customers selected on the basis of several other customer-based metrics. The analyses suggest that there is potential for improved profits when managers design resource allocation rules that maximize CLV. Managers can use the authors’ framework to allocate marketing resources efficiently across customers and channels of communication.