A New Model for Evaluating Customer Lifetime Value in High Risk Markets

A New Model for Evaluating Customer Lifetime Value in High Risk Markets

Abstract

There are some models for calculating CLV (Customer Lifetime Value), but most of these models are base on simple NPV (Net Present Value). However, simple NPV can assess a high-quality value for CLV but simple NPV ignores three important aspects of markets which are market risk affecting customer cash flow, flexibility of a firm reacting to these changes and cost of customer attraction and cost of customer retention. Therefore, simple NPV might not be sufficient for assessing CLV in high risk markets. This paper is going to suggest a new CLV calculating model with the superior accuracy in high risk markets because, environmental risk, supplier?s flexibility and cost of customer attraction/retention are included in this model. In this research, real options analysis is suggested to level the CLV model accuracy for relationships that are affected by environmental risk in which suppliers are flexible. By applying real options analysis to CLV, a new approach is recommended to assess an accurate CLV in high risks markets.

Authors:- Kaveh Ahmadi, Hamed Taherdoost, Samira Fakhravar and Neda Jalaliyoon

Keywords:- Components, Customer Lifetime Value (CLV), Environmental Risks, Supplier?s Flexibility, Customer Attraction/Retention Cost, Real Options Analyses

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