National Culture, Economy, and Customer Lifetime Value: Assessing the Relative Impact of the Drivers of Customer Lifetime Value for a Global Retailer

Abstract

Customer lifetime value (CLV), a metric used in many industries, is based on the cumulated cash flow a customer accrues during his or her lifetime. Firms have used CLV as a basis for formulating and implementing customer-specific strategies; however, these can vary across countries because of each country's cultural and economic influences. Typically, CLV is computed with three components: purchase frequency, contribution margin, and marketing costs. In this study, the authors demonstrate that national cultural dimensions affect the drivers of purchase frequency and contribution margin and that economic factors influence the components of CLV directly. They use customer-level transaction data from a global retailer for a random sample of customers in 30 representative countries over a six-year period. They estimate the model using a seemingly unrelated regression approach while accounting for the heterogeneity of customers across countries and the endogeneity of marketing costs incurred by the firm. The results indicate that global retailers should pay attention to the dimensions of national culture and economic conditions because of their differential impact on CLV.

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