CUSTOMER LIFETIME VALUE (CLV) MEASUREMENT BASED ON RFM MODEL

Babak Sohrabi · Amir Khanlari

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Customer churn and segmentation Customer Service Quality and Loyalty Consumer Market Behavior and Pricing

Abstract

Nowadays companies increasingly derive revenue from the creation and sustenance of long-term relationships with their customers. In such an environment, marketing serves the purpose of maximizing customer lifetime value (CLV) and customer equity, which is the sum of the lifetime values of the company’s customers. A frequently-encountered difficulty for companies wishing to measure customer profitability is that management accounting and reporting systems have tended to reflect product profitability rather than customer profitability. But in spite of these difficulties, Companies looking for methods to know how calculate their customers's CLV. In this paper, we used K-Mean clustering approach to determine customers's CLV and segment them based on recency, frequency and monetary (RFM) measures. We also used Discriminant analysis to approve clustering results. Data required applying this method gathered from one branch of an Iranian private bank which is established newly. Finally, in terms of this segmentation, we proposed customer retention strategies for treating with the bank customers.

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References

1994The Commitment-Trust Theory of Relationship Marketing 1990Zero defections: quality comes to services.1992The Changing Role of Marketing in the Corporation 1996Value-relevance of nonfinancial information: The wireless communications industry 1988Measure Costs Right: Make the Right Decisions 1998Customer lifetime value: Marketing models and applications 2006Modeling Customer Lifetime Value 2011Total Relationship Marketing

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