V.

Kumar & Werner Reinartz

Creating Enduring Customer Value

One of the most important tasks in marketing is to create and communicate value to customers to drive their satisfaction,
loyalty, and profitability. In this study, the authors assume that customer value is a dual concept. First, in order to be
successful, firms (and the marketing function) have to create perceived value for customers. Toward that end, marketers
have to measure customer perceived value and have to provide customer perceptions of value through marketing-mix
elements. Second, customers in return give value through multiple forms of engagement (customer lifetime value, in the
widest sense) for the organization. Therefore, marketers need to measure and manage this value of the customer(s) to
the firm and have to incorporate this aspect into real-time marketing decisions. The authors integrate and synthesize
existing findings, show the best practices of implementation, and highlight future research avenues.

Keywords: customer value, perceived value, customer lifetime value, CLV models, customer engagement

Online Supplement: http://dx.doi.org/10.1509/jm.15.0414

A
1991 BusinessWeek article describes the notion of customers.” Taken together, these high-level observations
“perceived value” as “the new marketing mania” and serve to underline the importance that the customer value
“the way to sell in the ’90s” (Power 1991). Morris aspect has had in the past and is continuing to have.
Holbrook (1994, p. 22) wrote, “despite this obvious importance Clearly, business is about creating value. The purpose of a
of customer value to the study of marketing in general and buyer sustainable business is, first, to create value for customers1
behavior in particular, consumer researchers have thus far and, second, to extract some of that customer value in the
devoted surprisingly little attention to central questions form of profit, thereby creating value for the firm. Thus, the
concerning the nature of value.” Moving forward to 2014, the key underlying premise of this article is that customer value
Marketing Science Institute (MSI) specifies in its biannual is a dual concept. First, in order to be successful, firms (and
Research Priorities (among its top priorities), “One of the most the marketing function) have to create perceived value for
important tasks in marketing is to create and communicate value customers. In that sense, value is defined as overall assess-
to customers to drive their satisfaction, loyalty, and profitability. ment of the utility of an offering2 according to perceptions of
Any insights in this area have significant implications for the what is received and what is given (Zeithaml 1988). Second,
long-term financial health of an organization. It truly is at the customers provide value (customer lifetime value [CLV], in
heart of what marketing is all about.” Out of the 30 Dow Jones the widest sense) for the organization. For the firms/decision
(United States) and 30 DAX (Germany) companies, 50% of the makers who allocate resources to markets, customers, and
companies’ vision or mission statements explicitly mention the products, the challenge is to dynamically align resources
notion of value creation for customers and/or stakeholders. spent on customers and products in order to simultaneously
For example, American Express’s mission statement includes generate value both to and from customers.
the sentence, “We provide outstanding products and un- We believe that aligning the customer-perceived value
surpassed service that, together, deliver premium value to our with customer-generated value vis-à-vis resource allocation is a
research challenge that needs careful and comprehensive atten-
tion. In this article, we focus on this alignment by examining the
V. Kumar (VK) is Regents Professor, Richard and Susan Lenny Dis-
tinguished Chair, Professor in Marketing, Executive Director of the Center specifics of this resource allocation challenge. More specifically,
for Excellence in Brand and Customer Management, and Director of the our goal is to answer the following concrete research questions:
PhD Program in Marketing, J. Mack Robinson College of Business, Georgia 1. What is value to the customer? What do we know?
State University; V. Kumar is also honored as the Chang Jiang Scholar,
Huazhong University of Science and Technology, China; TIAS Fellow, 2. How should (customer perceptions of) product and service
Texas A&M University, College Station, TX; and ISB Senior Fellow, Indian value be measured? How can key drivers of customer value be
School of Business. (e-mail: [email protected]). Werner Reinartz is Professor of identified and calibrated?
Marketing and Director of the Center of Research in Retailing, University of 3. How should the value from the customer be measured and
Cologne (e-mail: [email protected]). The authors thank the managed?
Marketing Science Institute and Kevin Keller for providing them the opportunity 4. What are the drivers of customer value? How can they be
to contribute to this topic. They thank the guest editors of this special issue, as incorporated in real-time marketing decisions?
well as Sarang Sunder, Maren Becker, Manual Berkmann, Mark Elsner,
Vanessa Junc, Monika Käuferle, Annette Ptok, Julian Wichmann, and three
1We use the term “customer” to denote a consumer as well as a
anonymous reviewers for their valuable suggestions on an earlier version of
this manuscript. They thank Bharath Rajan for his valuable assistance in this business customer.
2We use the notion of “offering” to indicate physical products,
study and Renu for copy editing an earlier version of this manuscript.
services, brands, or a combination thereof.

© 2016, American Marketing Association Journal of Marketing: AMA/MSI Special Issue

ISSN: 0022-2429 (print) Vol. 80 (November 2016), 36–68
1547-7185 (electronic) 36 DOI: 10.1509/jm.15.0414
 What Is Value to Customers? effect chain from concrete offering attributes mapping onto
abstract benefits generated. The “house of quality” concept
What Do We Know? (Hauser and Clausing 1988) is another very successful attempt,
Regardless of whether a physical good or a service is demanded originating from the operations and quality control domain, to
by individuals for final consumption (direct demand) or as an map objective attributes with customer perceived benefits. In-
input factor used in providing other goods and services (derived terestingly, this mapping process has been considered virtually
demand), the fundamental economic principle of utility max- only for the offering’s attributes, but an expansive consideration
imization remains the same. Whereas the utility maximization of monetary and nonmonetary cost aspects (price, transaction
theory is used to study products meant for final consumption, the costs, risks, privacy) seems absent from the literature.
profit maximization principle is used to study the inputs used in Once customers construct an aggregate assessment of an
the production of other products. The traditional model assumes offering’s perceived value, this value acquires meaning in two
that the customer has perfect information about product char- ways. First, as a necessary condition for customers to perceive
acteristics and associated costs, as well as stable preferences, an offering to be of positive value, perceived benefits have to
and thus is able to perfectly construct his/her final objective outweigh undesired consequences. Second, once this is the case
function—an assumption that has of course been relaxed in (and assuming the customer has the required willingness and
multiple ways (e.g., Hauser and Shugan 1983). means to transact), the assessment of value of a single offering
Given the central role of the notion of value to the customer among a set of different offers (e.g., from a consideration set)
in the marketing literature, it is not surprising that the subject requires a comparison standard. This comparison standard
has been dealt with repeatedly (Anderson 1998; Anderson, Jain may be concurrent competitive offerings, expectations, or past
and Chintagunta 1993; Monroe 1971; Wilson 1995; Zeithaml experience (similar to Golder, Mitra, and Moorman’s [2012]
1988). In various definitions of “value,” there is a reasonable nomenclature, a “value stock” perspective). Once the customer
variety in the spirit of describing the trade-off between “give” determines an offer to be of highest value, behavioral (choice,
elements and “get” elements (Anderson, Kumar and Narus loyalty, CLV) and attitudinal (satisfaction, loyalty) outcomes
2007; Sawyer and Dickson 1984). For the purpose of this ensue.
article, we define perceived value as customers’ net valuation of To summarize, we can observe that customer perceived
the perceived benefits accrued from an offering that is based value is a central mediating construct, separate from quality,
on the costs they are willing to give up for the needs they are perceived benefits, and satisfaction. Moreover, despite the
seeking to satisfy. relevance of this construct in practice, the literature has for the
Perceived customer value of an offering is the aggregation most part not been looking at the customer perceived value
of benefits that the customer is seeking, expecting, or expe- construct per se and has either omitted it from conceptual
riencing and the undesired consequences (Gutman 1982) that models (e.g., Golder, Mitra, and Moorman 2012) or has
come with them. Benefits and undesired consequences are the used proxies, such as customer satisfaction, instead. Finally,
results of buying and consuming the offering, and these may the aspects of perceived cost and undesired consequences
accrue directly or indirectly and be immediate or delayed. The in customer value models are arguably underspecified and
central aspect of this conceptualization is that customers choose understudied.
actions that, ceteris paribus, maximize the desired consequences
and minimize concurrent undesired consequences. Benefits (and
undesired consequences) are generated through offering attri- How Should (Customer Perceptions
butes. Benefits differ from attributes in that people receive ben- of) Product and Service Value Be
efits, whereas offerings have attributes (Gutman 1982). Thus, Measured? How Can Key Drivers
attributes are features or properties of an offering. De facto, of Customer Value Be Identified
customers will never perceive all objective attributes (clearly) but
will form a composite perception that recognizes the respective and Calibrated?
attribute salience. Measuring customer perceived value is the natural starting
Although much of the literature conceptualizes price as point before one can even consider giving recommendations
one of many potential attributes, it is of course necessary to with respect to the value-oriented management.
subsume all cost components separately. Besides price, these
typically include a vast array of different transaction costs, as Customer Value Measurement
well as learning cost and risk. Interestingly, much of the The key tasks to be completed are (1) measure overall per-
marketing literature typically accounts for price as the only ceived value, (2) measure the associated underlying attributes
cost component of an offering, thereby neglecting the many and benefits, and (3) determine the relative weights that link
different immediate and delayed types of costs that customers attributes/benefits to overall perceived value. Customers are
might incur. seeking offerings that yield the highest expected value or
Perceived attributes then are aggregated by customers utility. Because utility cannot be measured or observed
through a categorization process into more abstract benefits in directly, market researchers, psychologists, and economists
order to reduce information overload and to facilitate further have devised ways to proxy these utilities. There is a long
processing. The means-end chain model (Gutman 1982; Howard tradition of utility/preference measurement in marketing that
1977) and the Gray benefit chain (Young and Feigin 1975) are commonly uses compositional and decompositional methods
probably the most widely used conceptualizations behind this to model consumer preferences (see Table 1).

Creating Enduring Customer Value / 37

38 / Journal of Marketing: AMA/MSI Special Issue, November 2016

TABLE 1
Overview of Value Measurement Approaches with Exemplary Studies
Exemplary Role/Treatment
Measurement Applications/ Focus/Starting Role/Treatment Role/Treatment of Undesired
Approach Sources Point Outcome of Attributes of Benefits Consequences Data Input Other

Compositional
Multiattribute Gale (1994) Prespecified Overall value Prespecified Typically not Prespecified, Attributes are Explicit
method quality and price assessment considered typically price generated consideration
attributes only through focus of competition
groups or possible
managerial (comparison
intuition; attribute with competitive
ratings and offering)
importance
weights are
collected directly
by customer
survey
Consumer Sweeney and Prespecified Overall value Individual Several Individual Customer survey Does not allow
perceived Soutar (2001) higher-level score as well as prespecified prespecified prespecified for heterogeneity
value (PREVAL scale) dimensions underlying items to measure items allude to items to measure
multiitem (emotional value, dimensions higher-level value benefits of the value for money/
scale social value, dimensions offering price (broader
functional value) cost concept)
Relationship Ulaga and Eggert Prespecified Value as higher- Individual Individual Customer survey Explicit
value index (2006) higher-level order construct, prespecified prespecified consideration
benefit including weights items to measure items to measure of competition
dimensions that determine benefit various cost possible
the influence of dimensions dimensions (comparison
benefit and cost with second-best
dimensions supplier)
Decompositional
Conjoint Toubia, Hauser, Stated Part-worth Prespecified by Typically not Typically price Customer survey Allows for
analysis and Simester preferences for estimates for market considered, but only (technically, (relevant customer
(2004) hypothetical each attribute researchers could technically other cost attributes have heterogeneity
(Polyhedral product level (price is treated be incorporated dimensions could to be identified segments
adaptive choice- configurations as an attribute) be integrated) qualitatively
based conjoint (attributes and through prior
analysis) price) studies)
Aggregate Sinha and Overall perceived Offering location Implied without Implied without Implied without Customer survey Allows for
perceived DeSarbo (1998) value on perceived being specified a being specified being specified a customer
value value dimensions priori a priori priori; heterogeneity/
consideration of segments
various cost
dimensions
 TABLE 1
Continued
Exemplary Role/Treatment
Measurement Applications/ Focus/Starting Role/Treatment Role/Treatment of Undesired
Approach Sources Point Outcome of Attributes of Benefits Consequences Data Input Other

Auction (WTP)a Wang, Consumers Consumer’s Prespecified by Price only Auction/ Incentive-aligned
Venkatesh, and indicate reservation price given product (no experiment
Chatterjee (2007) maximum WTP range variation) (web-based or
(incentive- and state at which personal
compatible price point they interview)
elicitation of the are indifferent
range in a (incentive-
consumer’s aligned)
reservation
prices;
ICERANGE)
Pay what you Kim, Natter, and Consumers Insight into Prespecified by Price only Consumer survey
want (WTP) a Spann (2009) directly state their individual level of given product (no after transaction
WTP (seller has value perception variation)
to accept any (satisfaction)
Creating Enduring Customer Value / 39

amount)
aThese measures approximate value by measuring the consumer’s willingness to pay (WTP). Strictly speaking, they only yield an overall value assessment and do not provide the possibility of
disentangling the value attached to underlying characteristics (except in the case of a very elaborate study design).
 Compositional methods begin with a set of explicitly solutions) will become much more prevalent in the future (Ulaga
chosen attributes/benefits and use them as the basis for and Eggert 2006; Ulaga and Reinartz 2011; Vargo and Lusch
determining overall value evaluations. In the compositional 2004). Therefore, the conceptualization and operationalization
approach, expected utility is a function of the product of a broader set of cost attributes is required in future customer
attributes or benefits and corresponding costs multiplied by value models.
their respective importance weights. The key premise here is Furthermore, in the context of digitization, a new cost-
that relevant attributes and their respective relevant levels are related aspect has been emerging. For many online services
known to the decision maker, and customers follow largely a (e.g., Google Maps, Facebook), customers are not expected to
rational decision-making approach. This approach has found pay in monetary terms. The core benefit is free of monetary
reasonable entrance into the managerial domain (e.g., Gale charge from the end user’s perspective. The monetization
1994; Sweeney and Soutar 2001; Ulaga and Eggert 2006). comes mainly from advertising revenues, with ads targeted
In contrast, decompositional techniques attempt to infer at narrow segments or personal individual profiles. Here, we
underlying utilities from observed choice, that is, revealed have a new situation wherein the monetary component within
preferences. They start with measures of preference for the undesired consequences has entirely vanished. Customers
offerings or attribute bundles and use them to infer the now have to understand the value of the personal information
value attached to underlying characteristics. The goal is to that they will give up in this exchange. Thus, customers pay in
approximate offering value from the customer’s willingness terms of less privacy instead of monetary outlays. In fact, some
to pay. A vast literature covers the use of this approach and, customers value privacy of personal information privacy so
therefore, the interested reader should consult those sources much that they would be willing to pay to preserve privacy—
(Rao 2014). The key approaches include survey approaches, this then creates a market for privacy (Rust, Kannan, and Peng
auctions, conjoint analysis, and field experiments, with some 2002). Moreover, Koukova, Kannan, and Kirmani (2012) hint
of these methods having been widely used. Moreover, in the at new option value that digitization may provide. They show
past 30 years, there has been a strong recognition that nor- how different formats of media (e.g., offline newspaper sub-
mative decision models are usually violated (Huber, Payne, scription vs. online formats) may provide complementary and
and Puto 1982), and an entire stream of behavioral decision incremental value to customers, depending on usage situation,
theory research has unfolded (Simonson 2015) that details as opposed to mere substitution. In other words, digitization
the wide range of systematic deviations that can occur when will provide interesting and important new facets to the value
customers attempt to assess value. debate. Table 2 presents a summary of related findings
From the firm’s perspective, the focus of the measurement regarding the measurement of value and value drivers.
approaches pertains mostly to tangible product attributes. The
only intangible aspects that has seemingly found entry into
these measurement models are the brand name dimension
How Should Value from Customers
(e.g., Sinha and DeSarbo 1998) and aesthetic design aspects Be Measured and Managed?
(Kumar 2015). Other intangible aspects seem absent. For ex- Until now we have reviewed (1) how firms can create value to
ample, in the context of digitization, what seems interesting is the customer, (2) the ways to measure customer perceptions of
how an individual’s perception of what constitutes value is value, and (3) the treatment of undesired consequences when
influenced by others (i.e., network effects). managing customer value. However, creating and communi-
cating perceived value to customers is better served when firms
Treatment of Undesired Consequences (Costs) align perceived value with the resources they spend on cus-
The vast majority of attention in customer value measurement tomers, to ensure that the right amount of resources go toward
has been focused on the “get” side of the offering, namely, managing perceived value. To identify the right amount of
documenting the range and depth of attributes and benefits that resources, it is important to ascertain the value that customers
are associated with the offering. The situation is starkly different provide to the firm. Figure 1 illustrates the approach firms can
with respect to the undesired consequences and cost aspects. adopt to derive value from customers.
Although perceived sacrifice is multidimensional, it is de facto As seen from Figure 1, the first step in deriving value is to
operationalized as a unidimensional aspect in existing research realize the need for a forward-looking metric rather than a
(Teas and Agarwal 2000)—namely, on the price dimension. For backward-looking one. Traditionally, firms have used metrics
example, in much of the conjoint analyses and logit models, price such as recency–frequency–monetary value (RFM), past cus-
is introduced as another (linear) attribute variable (Hauser and tomer value (PCV), share of wallet (SOW), and tenure/duration
Urban 1986, p. 448). to measure the value of customers. The guidance from these
However, besides the mere cost (transaction price) of the metrics has driven decisions pertaining to the allocation of
offering to the customer, there is a large set of associated marketing resources. However, many of the traditional metrics
transaction costs, learning cost, and maintenance and life cycle focus on a backward-looking approach that only takes into
cost, which are for the most part overlooked in existing models. consideration past activity of a customer, which leads to out-
In many situations, the monetary value of the sum of these dated information being used for customer selection and
nonprice costs easily outsizes the transaction price, typical in resource allocation. In contrast, the CLV metric is a forward-
many business-to-business (B2B) settings (Anderson, Narus, looking metric that takes into account the variable nature of
and Narayandas 2009). Even more importantly, purchasing and customer behavior and enables firms to treat individual cus-
consumption models that are based on usage (i.e., customer tomers differentially and distinctly from each other depending

40 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 2
Summary of Findings Pertaining to the Measurement of Value and Value Drivers
Scholarly Contributions Thus Far Tasks for Future Research

Perceived attributes • Deriving underlying choice-relevant attributes • Understand whether and how attributes
and benefits using decompositional approaches simultaneously pay into a given benefit
• Understanding of longitudinal, situational, and • Broaden conceptualization and measurement
cross-sectional heterogeneity. of intangible attributes and benefits
Perceived costs and • Inclusion of price as key (cost-related) variable • Define conceptualization and operationalization
undesired consequences of a broader set of cost-related attributes
• Include new cost-related aspects due to
digitization
Perceived value • Deriving customer perceived value using • Examine value of personal information (context
compositional approaches of digitization)
• Measurement of customer perceived value • Examine influence of value perception by social
through willingness to pay network
• Accommodating for incentive alignment and
heterogeneity across time, customers, and
product categories
• Recognition of systematic violations of value
maximization principle

on their contributions to the company. Amid the backward- to obtain meaningful results. Nevertheless, the point to be
versus-forward-looking distinction, it is also important to noted here is the importance of being able to look into the
note the role of big data. Using big data that contains past future in determining the future value of customers, as op-
information (e.g., sales, revenue, marketing spending), it is posed to relying on insights from past value contributions.
possible to accurately predict future behavior of customers Realizing the need for a forward-looking metric is the
and, thus, compute their value to the firm. The use of big data, most critical step for a firm. Once this has been achieved, the
however, does come with the challenges relating to the quality subsequent steps only strengthen the firm’s position in cultivating
of data, data visualization, computing capabilities, and ability a customer-centric organization. The following sections describe

FIGURE 1
Approach to Deriving Value from the Customer

Move from backward-looking metrics to a forward-looking metric

Introduce CLV

Collect data for measuring CLV

Decide on a modeling approach (e.g., individual vs. aggregate)

Understand
the drivers of Choose a type of model (e.g., deterministic vs. probabilistic)
CLV
Revise and Reestimate

Estimate the model (e.g., Bayesian, econometric)

Develop and implement strategies to maximize CLV

Extend the customer value concept to an engagement framework

Realize enhanced firm value and shareholder value

Creating Enduring Customer Value / 41

the other steps identified in Figure 1 that put in place a cyclical This coverage has expanded the scope and application of
process involving data collection, deciding on the modeling CLV-based models for a multitude of industries and markets.
approach and the type of model, estimating the model, identifying This section discusses some of the popular modeling approaches
the drivers of CLV, developing and implementing CLV-based from the extant literature.
strategies, extending CLV into a customer engagement frame-
work, and reaping the benefits through higher firm value. Estimating models independently. Most models, barring
Firms have realized that just as customers derive value few (Niraj, Gupta, and Narasimhan 2001; Venkatesan, Kumar,
from the products/services being offered, firms, too, derive and Bohling 2007), focus on predicting future revenue and
value from the customer base. Kumar and Reinartz (2012) apply a constant gross margin and retention cost. Venkatesan
define this value from the customer as “the economic value of and Kumar (2004) use a generalized gamma distribution to
the customer relationship to the firm—expressed on the basis model interpurchase time and employ panel-data regression
of contribution margin or net profit” (p. 4). When firms methodologies to model the contribution margin. They con-
identify the value provided by customers, they will be able to sider various supplier-specific factors (channel communication)
(1) better manage their costs, (2) post increases in revenues and customer characteristics (involvement, switching costs, and
and profits, (3) realize better return on investment (ROI), (4) previous behavior) as the antecedents of purchase frequency and
acquire and retain profitable customers, and (5) realign mar- contribution margin. Web Appendix B provides details on the
keting resources to maximize customer value. independent models. Given the factors identified, purchase fre-
More so than customers’ past and current contributions to quency and contribution margin are modeled separately, and
the firm, a crucial factor is their contribution in future periods. the equation of CLV is specified as
It is this future component that is of immense interest to
å åð1 MC
Ti n
GCit
academicians and practitioners. The concept of future value
contribution has been conceptualized in the form of CLV. The
(1) CLVit = å ð1 + rÞ
t =1
t=
fi
-
l =1
m
+ rÞ
i,m,l
l
,

CLV metric has been conceptualized as the present value of

future profits generated from a customer over his or her lifetime where GCi,t is the gross contribution from customer i in pur-
with the firm (Venkatesan and Kumar 2004). Estimating CLV chase occasion t; MCi,m,l is the marketing cost for customer i in
helps the firm to treat each customer differently according to communication channel m in time period l; fi, or frequency, is
his or her contribution, rather than treating all customers in a 12/expinti (where expinti is the expected interpurchase time for
similar fashion. Furthermore, the sum total of lifetime value of customer i); r is the discount rate; n is the number of years to
all customers of the firm represents the customer equity (CE) forecast; and Ti is number of purchases made by customer i.
of the firm. In other words, CLV is a disaggregate measure of Estimating models simultaneously. Endogeneity is a sta-
customer profitability, and CE is an aggregate measure. After tistical issue in the CLV model that relates directly to causation.
computing the CLV of its customers, a firm can develop When purchase frequency, marketing cost, and gross con-
strategies such as optimally allocating its limited resources, tribution are predicted independently, it becomes unclear
identifying the next products that customers are likely to whether it is current MC that leads to future GC or current GC
purchase, and balancing acquisition and retention efforts, that leads to future MC. In addition, the issue of heterogeneity
among others, to achieve maximum return. relates to the customer profiles and has been found to influence
purchase quantity and timing significantly (Allenby, Leone,
Modeling Approaches to CLV
and Jen 1999). When different customers respond differently
In measuring CLV, marketing literature presents a rich variety of to marketing messages, the contribution margin model must
measurement approaches. However, the main objective across reflect this variation by allowing the regression weights to be
all approaches is clear—identify, maintain, and nurture profit- different for each customer. Simultaneously modeling pur-
able customers. The approaches can be categorized into two chase frequency, MC, and GC solves both these issues and
broad categories: the aggregate approach and the individual provides more accurate results.
approach. In the aggregate approach, the average lifetime value Venkatesan, Kumar, and Bohling (2007) use Bayesian de-
of a customer is derived from the lifetime value of a cohort or cision theory to address the uncertainty in customer response
segment, or even a firm. This level of measurement helps firms to marketing actions in a B2B setting. In this regard, they
in evaluating the overall effectiveness of the marketing plan but model the three parameters simultaneously. In the business-to-
not in customizing strategies for customers. In the individual consumer (B2C) setting, studies have developed a joint model
approach, the CLV of one customer over his or her entire for purchase timing and quantity. For instance, Boatwright,
lifetime with the firm is computed. This level of measurement Borle, and Kadane (2003) use the Conway–Maxwell–Poisson
helps firms personalize strategies according to customer needs distribution to jointly model the purchase timing and purchase
and the future profitability potential of the customer. Web quantity for an online grocery retailer. Similarly, Chintagunta
Appendix A lists the aggregate and individual approaches to (1993) models the incidence of purchase at each time interval
measuring CLV. Table 3 provides an overview of the select and the purchase quantity for grocery purchases by customers
literature from the extensive field of CLV. who make regular and frequent visits to a grocery store. By
simultaneously modeling the parameters, it is possible to
Types of CLV Models obtain an early-warning indication of abrupt changes in
Over the past two decades, research on CLV has covered a wide interpurchase times and purchase quantities for a customer.
range of business conditions through the modeling approaches. When individual customers/customer segments that exhibit

42 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 3
Summary of Select CLV Literature
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Rust, Kumar, and Use Monte Carlo simulation algorithm to predict Empirical Monte Carlo High-technology The proposed model provides large
Venkatesan customer purchase propensity, profit, and firm simulation services improvements in prediction over the simpler
(2011) marketing actions. models shown in literature.
Pfeifer (2011) Use company-reported data to estimate the total Empirical Autoregressive Netflix The study offers guidance about how to estimate
CLV of a firm’s current customers. (first-order) retention rate and revenue per renewal when the
reporting period spans multiple renewal periods.
Fader and Hardie Develop a model of relationship duration that can Empirical Shifted beta Any industry Failing to account for cohort-level retention-rate
(2010) be used to predict retention rates beyond the geometric dynamics leads to biased estimates of the
observed retention rates. residual value of a customer.
Kumar (2010) Study a multimedia multichannel communication Conceptual — Retailing Maximizing firm’s profitability is critical for
framework based on CLV. understanding drivers of CLV and CRV.
Kumar and Shah Link customer equity (determined by the CLV Empirical Multinomial logit High-technology Marketing strategies targeted at maximizing CLV
(2009) metric) to market capitalization. services, can increase firm value and, thus, ultimately,
retailing stock price.
Kumar et al. Show the implementation of CLV at IBM and its Empirical Seemingly High-technology CLV-based reallocation of marketing resources
(2008) effects on profitability and resource allocation. unrelated services yielded a $20 million revenue increase without
regression any additional resource investment.
Benoit and Van Analyze CLV by means of quantile regression and Empirical Quantile Financial The study provides insights into the effects of the
den Poel compare the effects of the covariates. regression services covariates on the conditional CLV distribution that
(2009) may be missed by traditional least squares.
Donkers, Predict CLV in multiservice industry. Empirical Probit, Insurance Simple models perform well. Focusing on
Verhoef, and parametric services customer retention is not enough; cross-buying
De Jong duration, also needs to be accounted for.
(2007) nonparametric
Creating Enduring Customer Value / 43

duration
Fader, Hardie, Demonstrate the use of Pareto/NBD models of Empirical Pareto/NBD Case analysis Different types of economic efficiencies for
and Jerath repeat buying for computing CLV. acquisition strategies and customer segmentation
(2007) can be made through this model.
Fader, Hardie, Propose a new model that links RFM metric with Empirical Pareto/NBD Online music Isovalue curves are highly nonlinear because
and Lee (2005) CLV using isovalue curves. website customers with low recency values but high
frequency present lower CLV than customers who
have lower frequency.
Rust, Lemon, Present a framework that enables competing Empirical Logit Airline The framework enables a “what-if” evaluation of
and Zeithaml marketing strategy options to be traded off on the marketing ROI, given a particular shift in customer
(2004) basis of projected financial returns. perceptions.
44 / Journal of Marketing: AMA/MSI Special Issue, November 2016

TABLE 3
Continued
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Venkatesan and Develop a dynamic framework to maintain/ Empirical Generalized High-technology Marketing contacts over various channels
Kumar (2004) improve customer relationships through optimal gamma services influence CLV nonlinearly. CLV-based customer
allocation of marketing resources and maximize distribution, selection provides higher profits in the future
CLV simultaneously. genetic compared with other metrics.
algorithms
Reinartz and Develop a framework to compute CLV and Empirical NBD/Pareto Catalog retailer, The study demonstrates the superiority of CLV
Kumar (2003) identify factors that explain the variation in high-technology framework by comparing it with other traditional
profitable lifetime duration. services frameworks.
Libai, Introduce a segment-based approach for Conceptual — Retailer The proposed approach retains the actionable
Narayandas, customer probability analysis. information associated with individual-level
and Humby analysis while also maintaining the simplicity of
(2002) the more aggregate-level models.
Reinartz and Propose a method of computing CLV to test the Empirical NBD/Pareto High-technology Although loyal consumers demand premium
Kumar (2000) propositions between customer loyalty and services service and believe they deserve lower prices,
profitability. they are not always profitable, nor do they
contribute more to profits in the long run.
Pfeifer and Introduce the use of Markov chain models for Empirical Markov chain Catalog Markov chain models can handle complicated
Carraway modeling customer relationships and CLV. company customer relationship situations. They can also
(2000) handle some complicated situations that
algebraic solutions cannot.
Berger and Nasr Present mathematical models for determination of Conceptual — Illustrative The study introduces the general classes of CLV
(1998) CLV. examples models.
such a warning are identified, firms can implement appropriate never completely terminate their relationship with a firm. Thus,
customer relationship management (CRM) initiatives and cus- in this approach, firms measure future profitability of a customer
tomized marketing actions to each individual or to each cus- by predicting his/her purchase pattern over a prediction period,
tomer segment. but they do not predict when a customer will terminate the
Another setting in which simultaneous modeling has been relationship with the firm. In this model, the profitability of a
offered is in winning back lost customers. Losing customers customer is measured in terms of total profits and net present
for good can be a significant setback for a firm’s customer value of profit. The predictions regarding customer behavior
management efforts. While studies have demonstrated the include (1) the propensity for customer i to purchase in each
merits of preventing customers from defecting (Bolton 1998, future time period t and (2) the profit provided by customer i
Bolton and Lemon 1999, Lemon, White, and Winer 2002), given purchase in future time period t. While the predictions of
it is also important to look into ways of winning back lost customer behavior capture the revenue aspect, the marketing
customers. Kumar, Bhagwat, and Zhang (2015) study actions by the firm (e.g., number of sales calls, direct mail sent
whether firms should chase a lost customer by investigating to a customer) capture the cost aspects; these aspects need to be
the impact of the reason for defection on reacquisition and predicted for accurate CLV measurement. Toward this end, the
second-lifetime duration and profitability. They achieve this study proposes a single model framework that predicts customer
by jointly estimating customer reacquisition, second-lifetime purchase incidence (Purit), customer gross profit (Pit) condi-
duration, and second-lifetime profitability per month. Web tional on purchase, and firm marketing contacts (Xit) and also
Appendix B provides details on these simultaneous models. models the potential correlations among these factors. Web
Brand-switching approach. Using information about the Appendix B provides more details on the joint probability
focal brand and the competing brands, Rust, Lemon, and model.
Zeithaml (2004) model acquisition and retention of customers in Customer migration model. Dwyer (1997) presents a cus-
the context of brand switching. This approach requires collecting tomer migration model for CLV analysis that is applicable for the
information on the brand purchased in the previous purchase “always-a-share” typology. Accordingly, customer behavior can
occasion, the probability of purchasing different brands, and be predicted on the basis of historical probabilities of purchase,
individual-specific CE driver ratings from the customers. depending on recency and the current recency state in which the
Through a Markov switching matrix, the individual customers’ customer is located. Further generalizations include segmenta-
probability of switching from one brand to another based on tion variables such as the RFM metric and other demographic
individual-level utilities is modeled. The probability thus cal- variables. In several situations, RFM is used as a segmentation
culated is multiplied by the contribution per purchase to arrive at tool by classifying segments as “low RFM” and “high RFM.”
the customer’s expected contribution to each brand for each Other segmentation approaches include SOW and customer life
future purchase. The summation of expected contribution over a cycle. Web Appendix B provides the approach to expressing CE.
fixed time period, after adjustments are made for the time value Deterministic model. Deterministic models precisely
of money, produces the CLV for the customer. Web Appendix model outcomes as determined by parameter values, rela-
B provides more details on the CLV model specification. tionship states, and initial conditions. These models focus on
Monte Carlo simulation algorithm. Another approach inputs and outputs and leave little room for variations. Typ-
adopted by researchers to investigate the value created by ically, these models are used to study firm actions such as
customers is the simulation method. While managerial heu- customer acquisition, customer retention, customer profit-
ristics and empirical models have uncovered important in- ability, cross-buying behavior, and product return behavior
sights on customer value, studies have also investigated the (Reinartz and Kumar 2000, 2002, 2003). The basic form of the
use of simulation models. The reason for exploring simulation deterministic approach used to model CLV is described by Jain
methods stems from relatively unsuccessful attempts at pre- and Singh (2002) (see Web Appendix B for the basic model).
dicting future customer profitability, with very simple models While this model does not account for acquisition costs, other
often performing just as well as more sophisticated ones. For models assume a constant gross contribution margin and
instance, Campbell and Frei (2004) find that it is easier to marketing costs (Berger and Nasr 1998). Several variations
predict future profitability for some customers than for others, of this basic model have been proposed (e.g., Dwyer 1997).
even for customers within the same profit tier. Similarly, Blattberg, Getz, and Thomas (2001) provide a comprehensive
Malthouse and Blattberg (2005) find that their best models way to calculate customer equity by accounting for the number
misclassify most customers who are predicted to have high of prospects, acquisition spending, and consumer segments.
profitability. Furthermore, Donkers, Verhoef, and De Jong Probabilistic model. In a probabilistic model, the observed
(2007) show that the simplest model they test performs the behavior is viewed as the realization of an underlying stochastic
best and provides better predictions than other models. These process governed by latent (unobserved) behavioral charac-
studies make the case for alternative approaches, such as a teristics, which, in turn, vary across individuals. The focus of
simulation method. this type of model is on describing (and predicting) the observed
Rust, Kumar, and Venkatesan (2011) present a Monte Carlo behavior instead of trying to explain differences in observed
simulation method that can accurately predict future customer behavior as a function of covariates (as is the case with any
profitability and performs better than existing methods. They regression model). In other words, this type of model assumes
accomplish this in an “always-a-share” setting wherein there is that consumers’ behavior varies across the population accord-
no dormancy in a customer–firm relationship and customers ing to some probability distribution (Gupta et al. 2006). Web

Creating Enduring Customer Value / 45

Appendix B provides details on the basic probabilistic model. The drivers of CLV determine the nature of the rela-
Literature provides many models to estimate the CLV of a tionship between the firm and the customer, and they help
customer using the internal data of a company. One such ap- estimate the level of profitability and the CLV of each
proach defines CLV as a function of the time interval between customer. They have been classified into two types: exchange
e-mail contacts sent to a customer (Drèze and Bonfrer 2009). characteristics and customer heterogeneity (Reinartz and
Using the data from the entertainment industry, this model Kumar 2003). Exchange characteristics encompass the set
estimates the relationship between the time interval and CLV. of variables that define and describe relationship activities
The objective is to find the optimal time interval for permission- in the broadest sense. Customer heterogeneity refers to the
based e-mails to a customer base. Apart from internal data, demographic and psychographic indicators that help a firm
survey data can also be used to estimate the CE of a firm (see in segmenting customers and managing customer–firm rela-
Rust, Lemon, and Zeithaml 2004; Rust, Zeithaml, and Lemon tionships. As expected, the nature of a business (whether B2B
2001). or B2C) determines the exchange characteristics and customer
Structural model. The issue of multiple discreteness heterogeneity factors. Figure 2 lists the classification of these
(wherein consumers may purchase more than one brand in drivers in B2B and B2C settings.
one purchase occasion) in studies of CLV has received at- Similarly, Palmatier et al. (2006) provide a synthesis of the
tention in the literature (e.g., Kim, Allenby, and Rossi 2002; several empirical studies that have investigated the drivers
Manchanda, Ansari, and Gupta 1999). However, the results that lead to stronger customer–firm relationships, as observed
have been suboptimal because conclusions regarding the through WOM, customer loyalty, sales-related perfor-
quantity decision could not be made effectively. Sunder, mance, customer likelihood to repurchase, and customer–
Kumar, and Zhao (2016) adopt a direct utility approach to firm cooperation. These studies clearly identify the drivers
structurally model multiple discreteness while accounting for that have the greatest impact on customer–seller relation-
variety-seeking behavior in the demand model in assessing ships. However, as more investigations on the nature of
CLV of consumers in the consumer packaged goods (CPG) customer–firm relationships are uncovered, we can expect the
setting. Furthermore, the study is conducted on a longitudinal list of drivers to change.
transaction database and allows the budget to vary deter-
ministically with time. In addition, this is the first study to Strategies for Maximizing CLV
unify choice, timing, and quantity decisions in a single Once the computation of CLV is completed, firms proceed to
equation, thereby providing a direct approach for assessing maximize this metric in order to reap its full benefits. The
CLV. Web Appendix B details this approach. CLV metric assists marketers to increase future profitability
As a summary, Table 4 provides a comparison of the of not just current customers but also prospects. Furthermore,
approaches discussed in the previous sections, according to the CLV metric is not just about the dollar value of future
their merits and shortcomings. customer profitability. It extends beyond that and aids in
strategy development on one or more of the following: cus-
tomer acquisition, customer retention, balancing customer
What Are the Drivers of Customer acquisition and retention, customer churn, and customer win-
Value? How Can Customer Value Be back.3 While the importance of these five tasks in ensuring
Incorporated in Making Real-Time profitability is duly noted, this does not mean that “max-
Marketing Decisions? imizing” each individual metric is the correct recipe for
success. Firms can look into maximizing CLV from an
Until now, we have discussed various models proposed for
optimization perspective wherein the elasticities of each of
understanding and measuring value from customers. The
these factors can be studied. Such an endeavor might be a
choice of model is ultimately decided by the availability of
promising avenue for future research. This section highlights
data (volume and variety), time, and technical resources, as
the importance of understanding these five tasks in devel-
well as the intended use of the CLV measure. Furthermore,
oping the CRM playbook of an organization.
information on competitive actions brings marketplace
realities into the decision-making process through game- Customer acquisition. The expansive literature on cus-
theoretic approaches. The final choice of model notwith- tomer acquisition has probed several important questions, such
standing, the results have to lead to managerial decision as the following:
making that is also conducive to real-time modifications. This
involves understanding the drivers of customer value. In
• How likely is it that prospects will respond to our acquisition
promotion?
discussing the real-time applications, we adopt a relative
• How many new customers can we acquire in this campaign?
approach wherein we focus more on time intervals (e.g.,
• How many orders will each of our newly acquired customers
frequency of buying, pattern of buying cycles, the need to place?
revise CLV scores periodically) rather than immediate actions.
• How do the marketing variables, such as shipping fee, WOM
In this regard, we survey and present research that has referral, and promotion depth, influence prospects’ response
examined this aspect of real-time applications and provide behavior?
related insights for implementation. This, we believe, will
present a new perspective on the real-time nature of decision 3For more details, see the “Wheel-of-Fortune” strategies in Kumar
making. (2008).

46 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 4
Comparison of Select CLV Models
CLV Model
Type Merits Shortcomings Typical Data Requirements Exemplar Study Setting

Aggregate • Aids in evaluating overall • Not able to customize marketing • Publicly available firm-level data that • Both brick-and-mortar firms and
approach effectiveness of marketing actions strategies includes information on margin, online firms across all industries that
discount rate, and retention rate are publicly traded
Independent • Easy to use • Requires end-user transaction data • Customer-level data on transactions • High technology
estimation • Aids in customer-level and firm-level • Creates endogeneity and and customer-firm interactions from
strategy development heterogeneity issues firm’s internal records
• Does not include competition
Simultaneous • Accounts for endogeneity and • Model development and estimation • Customer-level data from firm’s • Telecommunications
estimation heterogeneity is more complex internal records that includes • High technology
• More accurate results than information on purchase quantity, • Grocery stores
independent estimation product upgrades, cross-buying,
marketing communication, product
returns, and frequency of contacts
Brand- • Can be used when the firm has • Sample selection can play an • Survey data from a sample of • Airlines
switching cross-sectional and longitudinal important role in the accuracy of the customers that includes data on • Rental cars
approach database metric purchase frequency, contribution • Electronic stores
• Accounts for all types of marketing • Often relies heavily on survey-based margin, and brands purchased • Grocery stores
expenditures data, thus leading to an increase in recently
• Can accommodate competition sampling cost and survey biases
Creating Enduring Customer Value / 47

Monte Carlo • Better predictive power over simpler • Cannot be used in a lost-for-good • Individual-level data from firm’s • High technology (can also be used
simulation competing models setting internal records that includes for actual and simulated data)
algorithm • Better understanding of customer • Heavy reliance on long purchase information on purchase propensity,
profitability and firm value histories marketing contacts, and gross profit
Customer • Considers probabilistic nature of • Can be used only in limited business • Data from firm’s internal records that • Catalog mailing
migration customer purchases settings includes purchase propensities and • Direct marketing
model recency of purchase
48 / Journal of Marketing: AMA/MSI Special Issue, November 2016

TABLE 4
Continued
CLV Model
Type Merits Shortcomings Typical Data Requirements Exemplar Study Setting

Deterministic • Higher predictive accuracy • Requires huge amounts of individual • Segment-level data on marketing • Financial services
model • Aids in firm-level strategy customer data costs, acquisition rate, retention • High technology
development • Does not consider the relationship rate, and contribution margin from • Insurance
between model parameters firm’s internal records • Apparel
• Descriptive, but not prescriptive, and • Catalog retailing
therefore less helpful in managerial
decision making
• Does not account for competition
Probabilistic • Can be used when the firm does not • Assumes purchase volume and • Individual-level data from firm’s • Magazines/catalogs
model have a longitudinal database interpurchase time to be exogenous internal records, such as recency of • Entertainment
• Identification of subdrivers aids in • Calls for frequent updating of the purchases, frequency of purchases, • Internet
better resource allocation model and value of transactions • High technology
• Heavy reliance on data and lesser • Airlines
reliance on managerial insight
Structural • Model based on theoretical • Model development and estimation • Scanner panel data on brands • Consumer packaged goods
model underpinnings of consumer is very complex purchased in an instance, imputed
behavior • Relies heavily on across and within price information, household-level
• Can account for various salient variation in customer purchases market share of competing brands,
aspects of consumer behavior (e.g., and budgetary constraints
multiple discreteness, budgeting)
that cannot be addressed by other
methods
• Aids in accurate out-of-sample
prediction and managerial policy
simulations
 FIGURE 2
Drivers of CLV in B2B and B2C Settings

B2B Firm B2C Firm

• Past customer spending level

• Cross-buying behavior
• Focused buying behavior
• Past customer spending level • Average interpurchase time
• Cross-buying behavior • Participation in loyalty programs
Exchange
• Purchase frequency • Customer returns
Characteristics • Recency of purchase • Customer-initiated contacts
• Past purchase activity • Frequency of marketing contacts
• Marketing contacts by the firm • Type of marketing contacts
• Multichannel shopping
• Consumer deal usage intensity
• Coupon usage intensity

Customer Includes variables such as Includes variables such as age,

industry, annual revenue, and gender, spatial income, and
Heterogeneity location of the business physical location of the customers

• How long will the newly acquired customers stay with our of the WOM referral source influence the probability that re-
companies? ceived WOM induces a purchase behavior. In a B2B setting,
• How much profit or value will this acquisition campaign studies have investigated the role of referrals in customer
bring to our companies? acquisition. For instance, Hada, Grewal, and Lilien (2010)
To understand customer acquisition, it is important to pay recognize the types of referrals (customer–to–potential cus-
attention to the business setting: noncontractual or contractual. tomer referrals, horizontal referrals, and supplier-initiated
In a noncontractual setting, customers can and do split their referrals) and have developed the concept of referral equity to
spending across several firms. As a result, observing when a capture the net effect of all referrals for a supplier firm in
customer ceases to be a customer becomes difficult for the firm. the market. These authors further propose a framework for
However, situations wherein customers develop strong rela- managing supplier-initiated referrals that incorporates the
tionships with firms do exist (e.g., strong preference toward supplier and the supplier’s management of the communi-
a particular brand of coffee). In a contractual setting, firms cation between the referrer and the potential customer. Godes
enjoy a relatively continuous future cash flow for a period of (2012) explores the conditions and subsequent impact of
time, and they know when customers terminate the relation- firms launching referral programs. The study demonstrates
ship. Even in such settings, it is possible for customers to defect that launching such programs increases the willingness to pay
without notifying the firm (e.g., failure to renew a magazine of the early adopters in the high-technology B2B market. In
subscription). Studies have developed different models to addition, Kumar, George, and Leone (2013) develop and test
study these two business settings regarding factors such as the an approach to compute business reference value (BRV),
expected duration or time of the relationship with customers, identify the behavioral drivers of BRV, and offer strategies to
the likelihood of a customer continuing the relationship, and target and manage the most promising customers on the basis
indicators of defection at the end of a service period, among of their CLV and BRV scores.
others. Table 5 lists a representative set of studies that have In addition to customer acquisition, the number of newly
considered these issues and accounted for many of the acquired customers and their initial order quantity are also
problems that might occur in the model-building process. important. While Lewis (2006b) identifies that shipping fees
A fundamental research interest in understanding cus- influence the customer acquisition process and the initial
tomer acquisition is in identifying the probability of a cus- order size, Villanueva, Yoo, and Hanssens (2008) show that
tomer being acquired. Several studies have explored this market channels also influence the customer acquisition
question and have uncovered valuable insights (Lix et al. process and the value that newly acquired customers will
1995; Reinartz, Thomas, and Kumar 2005). For instance, bring to the company. The latter study develops two func-
Von Wangenheim and Bayón (2007) find that customer tions: (1) the value-generating function, which links newly
satisfaction influenced the number of WOM referrals, which acquired customers’ contributions to the firm’s equity
had an impact on customer acquisition, and that the recep- growth, and (2) the acquisition response function, which
tion of a WOM referral had an increased marginal effect on expresses the interactions between marketing spending and
the likelihood of a prospect to purchase. This is achieved the number of acquisition. Using a three-variable vector
by studying (1) whether prospects’ purchase likelihood is a autoregression modeling technique for data from an online
function of WOM referrals, and (2) whether the characteristics retailer, the study finds that marketing-induced customers add

Creating Enduring Customer Value / 49

50 / Journal of Marketing: AMA/MSI Special Issue, November 2016

TABLE 5
Summary of Select Customer Acquisition Studies
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Hada, Grewal, and Propose a framework that incorporates the Empirical Triadic Business analytic Influence of the supplier-selected referral on
Lilien (2014) supplier and their management of communication solutions potential customers depends on supplier
communication between the referrer and the uncertainty, and perceived bias significantly
potential customer. reduces potential customers’ supplier
evaluation.
Kumar, George, and Measure, understand, and manage BRV. Empirical Binary choice Telecommunications, The study defines the concept of BRV,
Leone (2013) model financial services determines the drivers of BRV, and illuminates
the role of measures in driving BRV.
Godes (2012) Understand when and why a business should Empirical Game theory High-technology B2B Reference program can serve as a partial
announce a referral program. substitute for an exclusive-use contract.
Villanueva, Yoo, and Propose and test an empirical model that Empirical Vector Web hosting company Marketing-induced customers add more short-
Hanssens (2008) captures long-term effects of customer autoregression term value, but WOM customers add nearly
acquisition on CE growth. model using twice as much long-term value to the firm.
three variables
Von Wangenheim Examine the links between customer Empirical Logistic Energy market The satisfaction–WOM link is nonlinear and is
and Bayón (2007) satisfaction, WOM, and customer acquisition. regression moderated by several customer involvement
dimensions.
Lewis (2006a) Examine the relationship between acquisition Empirical Survival Newspaper and online Acquisition discount depth is negatively related
discount depth and the value of customer analysis grocer to repeat-buying rates and customer asset
assets. value.
Lewis (2006b) Study how shipping fee schedules affect Empirical System of Online grocer Higher shipping fees are associated with
customer acquisition, customer retention, and linear reduced ordering rates, and penalties for larger
order size. regression orders lead to reduced order size.
Thomas, Reinartz, Determine whether maximizing customer Empirical Standard right- B2B high-technology Decreasing marketing spending for the B2B
and Kumar (2004) acquisition and customer retention separately censored Tobit manufacturer, firm and catalog retailer, and increasing
maximizes profits. pharmaceuticals, and spending to customers of the pharmaceutical
catalog retailer firm, would increase total customer profitability.
Hansotia and Wang Determine which prospects should be Empirical Probit and Motor club membership The authors recommend that firms adopt a
(1997) contacted, and present models to estimate Tobit models long-term view by looking beyond response to
response and customer value at the individual the actual behavior of customers once they are
level. acquired.
Lix et al. (1995) Link purchase-intention information from Empirical Linear Retailer The study provides a methodology to achieve
survey data. regression and efficiency in other direct mail efforts.
log-linear
more short-term value, but WOM customers add nearly twice measure a customer’s future value and profitability to the firm,
as much long-term value to the firm. The study also dem- which makes it easier to make decisions on how much to spend
onstrates the long-term impact of different resource alloca- as compared with the future value. This logical approach to
tions for acquisition marketing using dynamic simulations. customer retention calls for data pertaining to several aspects of
Of course, making marketing decisions using the response customer transactions over a period of time. With respect to
probability, initial order quantity, and duration is not enough. modeling techniques required to understand customer reten-
Companies should select prospects to acquire according to tion, simulated maximum likelihood estimation is the most
their lifetime contribution, which can be termed lifetime value, commonly used procedure. However, more advanced esti-
CLV, or CE. For instance, Reinartz, Thomas, and Kumar (2005) mation techniques, such as Markov chain Monte Carlo,
estimate customer profitability with a standard right-censored Bayesian estimation, and generalized method of moments,
Tobit model using a set of exogenous variables and including the have been used. Understanding customer retention also calls
predicted duration and response probability. The authors find for accounting for customers’ responsiveness to retention efforts
that decreasing marketing spending for a B2B firm and catalog because this determines the method of communicating the
retailer and increasing spending to customers for a pharma- intention to retain and the costs related to it.
ceutical firm leads to increases in total customer profitability. Researchers and managers alike are placing higher im-
portance on the study of customer retention and its impact on
Customer retention. Aside from customer acquisition, company profits. In both B2B and B2C firms, model-based
firms devote large amounts of resources toward customer approaches are becoming increasingly available, and thus
retention practices. To gain a better understanding of cus- necessary, in both contractual and noncontractual relation-
tomer retention and to advise firms in a better manner, studies ships. In developing strategies for firms, research studies have
have typically focused on answering the following questions: drawn insights from (1) explaining customer retention or
• Will the recently acquired customer repurchase or not? defection (Bolton and Lemon 1999; Borle, Singh, and Jain
• What will be the lifetime duration of the customer (i.e., when 2008); (2) predicting the continued use of the service rela-
will the customer churn)? tionship through the customer’s expected future use and
• Given that the customer is going to repurchase, (1) How overall satisfaction with the service (Lemon, White, and Winer
many items is that customer going to purchase? (2) How 2002; Lewis 2006a); (3) predicting renewal of contracts using
much is that customer likely to spend? (3) Will the customer dynamic modeling (Bolton, Kannan, and Bramlett 2000), (4)
purchase in multiple product categories? modeling the probability of a member lapsing at a specific time
• What will firms have to do in order to retain a customer worth using survival analysis (Bhattacharya 1998); (5) modeling
retaining? the duration of relationship using the negative binomial dis-
• What is the long-term impact of this customer’s purchase tribution (NBD)/Pareto model and the proportional hazard
behavior on firm value?
model (Fader, Hardie, and Lee 2005; Reinartz and Kumar
Various studies have been conducted and many models have 2000; Schmittlein, Morrison, and Colombo 1987); (6) use of
been developed to answer these questions. Table 6 shows a loyalty and rewards programs for retention (Leenheer et al.
representative set of studies that have considered these issues 2007; Meyer-Waarden 2007); and (7) assessing the impact of a
and accounted for many of the problems that might occur in reward program and other elements of the marketing mix
the model building process. (Anderson and Simester 2004; Schweidel, Fader, and Bradlow
When to engage in the activity of retaining a customer can 2008).
be a highly misunderstood and undervalued component in An important strategy for retaining customers is to
customer retention. Monitoring a customer’s purchasing and nurture their cross-buying behavior. It has been shown that
attitudinal behavior is vital in understanding when a firm when customers purchase more products or services from
should aggressively and actively pursue his or her retention. the same firm, they extend the duration of their relationship
This is important for three reasons. First, firms can often lose with the firm (Reinartz and Kumar 2003) and increase
sight of a customer’s loyalty and lose their profitable cus- purchase frequency (Reinartz, Thomas, and Bascoul 2008).
tomers, thereby creating undue financial stress. Second, Cross-buying results not only in an increase in revenue con-
monitoring customer behavior allows the firm to identify the tribution for the firm but also in more engagement with the
attitudinal changes in a customer. This is important because firm, higher profit contribution, and higher switching costs
understanding the attitudinal changes of a customer with (Kumar, George, and Pancras 2008). Although cross-buying
regard to the firm’s brand advises the firm on how and when has the potential to increase profitability, some firms (e.g.,
to be aggressive in its retention strategies for that particular financial services firms) have encountered unprofitable cus-
customer. Finally, a defecting customer can cause harm to tomers despite taking efforts to promote cross-buying (Brown
the firm’s brand through negative WOM if the customer’s 2003). Greater customer cross-buying does not always
defection is due to unmet needs. If such unmet needs prevail result in higher customer profitability. Shah et al. (2012)
over a large set of customers, and if this possibility is not study this phenomenon of unprofitable cross-buying and
addressed, the negative WOM may quickly snowball into a find that (1) customer cross-buying is not necessarily prof-
serious issue, thereby damaging both the brand and firm value. itable for all customers of the firm and can in fact adversely
Determining how much to spend on a customer is an im- affect a firm’s bottom line, (2) persistent adverse customer
portant assessment involved in identifying who and when to behavior drives unprofitable customer cross-buying over
retain. Innovations in statistical modeling now allow firms to time, and (3) a company’s marketing policies and practices

Creating Enduring Customer Value / 51

52 / Journal of Marketing: AMA/MSI Special Issue, November 2016

TABLE 6
Summary of Select Customer Retention Studies
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Borle, Singh, and Estimate purchase-level CLV by jointly modeling Empirical Discrete-hazard, Membership-based Longer interpurchase times are associated with
Jain (2008) purchase timing, purchase amount, and risk of log-normal direct marketing larger purchase amounts and greater risk of
customer defection company leaving the firm.
Schweidel, Model customer retention that accounts for Empirical Proportional Telecommunications Inclusion of promotional effects improves the
Fader, and duration dependence, promotional effects, hazard service forecast accuracy of retention behavior, whereas
Bradlow subscriber heterogeneity, cross-cohort effects, including cross-cohort effects does not
(2008) and seasonality. significantly improve it.
Fader and Provide an alternative approach to survivor Empirical Shifted beta Contractual Proposed model offers useful diagnostic insights
Hardie (2007) analysis for estimating customer tenure. geometric subscription-based and is very easy to implement using Microsoft
business Excel.
Leenheer et al. Develop a model on the relation between loyalty Empirical Type II Tobit Grocery retailing Model accounts for endogeneity of loyalty
(2007) programs and purchase behavior. programs. Predictive validity of the proposed
model is much better than that of the naı̈ve model.
Meyer-Waarden Examine the impact of loyalty programs on Empirical Proportional Supermarket The higher the share of consumer expenditures in
(2007) customer lifetime duration. hazard a store, the longer the lifetime duration will be.
Bolton, Lemon, Model a firm’s repatronage behavior for service Empirical Random Enterprise-level Models of customer retention should incorporate
and Bramlett contracts. intercepts systems the extent, variability, and timing of a supplier’s
(2006) service delivery over time.
Verhoef and Investigate the impact of channels firms Empirical Probit Financial services Direct-mail acquisition channel performs poorly
Donkers frequently use on customer loyalty and cross- provider on retention and cross-selling; radio and TV
(2005) buying. perform poorly for retention only; and website
performs well for retention.
Anderson and Investigate how the depth of a current price Empirical Poisson, linear Mail-order durable Deeper price discounts in the current period
Simester promotion affects future purchasing of first-time regression goods increased future purchases by first-time
(2004) and established customers. customers but reduced future purchases by
established customers.
Verhoef (2003) Investigate the differential effects of customer Empirical Tobit, probit Financial services Affective commitment and loyalty programs that
relationship perceptions and relationship provider provide economic incentives positively affect both
marketing instruments on customer retention and customer retention and share development.
share over time.
 TABLE 6
Continued
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Lemon, White, Examine the influence of customer future-focused Empirical Logit Interactive television Consumers are significantly forward-looking
and Winer considerations, over and above the effects of entertainment when they make the decision to continue (or
(2002) satisfaction, on the customer’s decision to service discontinue) a service relationship.
discontinue a service relationship.
Bolton, Kannan, Investigate the conditions in which a loyalty Empirical Logit Financial services Loyalty program members overlook negative
and Bramlett program will have a positive effect on customer evaluations of the company vis-à-vis competition.
(2000) evaluations, behavior, and repurchase intentions.
Reinartz and Test whether long-life customers are always Empirical NBD/Pareto Catalog retailer Long-life customers know their value to the
Kumar (2000) profitable. company and demand premium service; they
believe they deserve lower prices, and they
spread positive word of mouth only if they feel and
act loyal.
Bolton and Quantify the relationship between customer Empirical Type I Tobit Interactive television Customers’ usage levels can be managed
Lemon (1999) satisfaction and subsequent service usage. entertainment through pricing strategies, communications, and
service and cellular dynamic customer satisfaction management.
service
Bhattacharya Understand how members’ characteristics relate Empirical Hazard Art museum Hazard of lapsing is lowered with longer duration,
Creating Enduring Customer Value / 53

(1998) to lapsing behavior in paid membership contexts. enrollment in special interest groups, gift
frequency, and higher interrenewal times.
Bolton (1998) Develop a model of the duration of Empirical Proportional Cellular service Relationship between duration times and
provider–customer relationship and the role of hazard satisfaction is stronger for customers who have
customer satisfaction. more experience with the service organization.
 TABLE 7
Summary of Select Balancing Customer Acquisition and Retention Studies
Representative Study Study
Studies Study Focus Type Model Type Setting Insights

Reinartz, Thomas, Develop a modeling Empirical Probit two-stage B2B high- Firms can manage their
and Kumar (2005) framework for balancing least squares technology customer bases profitably
resources between manufacturer through resource allocation
customer acquisition efforts decisions that involve trade-
and customer retention offs between acquisition and
efforts. retention initiatives.
Thomas (2001) Establish that the customer Empirical Tobit Airplane pilot The proposed methodology
acquisition process affects membership corrects for biases in the
the customer retention customer retention analysis
process. that result from assuming
that customer acquisition
and retention are
independent processes.
Berger and Bechwati Create a framework for the Conceptual Decision calculus — The study discusses
(2001) optimal allocation of decisions about expenditure
promotion budget for allocation between
customer acquisition and acquisition and retention in
retention. different market conditions.
Blattberg and Find the optimal balance Conceptual Decision calculus — The authors recommend
Deighton (1996) between acquisition and that once managers have
retention that maximizes determined the balance
customer equity. between acquisition and
retention, they plan for each
task separately.

could facilitate (or deter) the persistence of adverse customer Table 7 lists a select set of studies that have considered
behavioral traits associated with unprofitable cross-buying. balancing customer acquisition and retention.
Using data from five firms, the study finds that the firm with In modeling independently, Lewis (2006b) investigates
the most liberal product-return policy had the maximum whether shipping fees differentially influence customer
level of unprofitable cross-buying due to excessive product acquisition and retention. In a system of simultaneous
returns. equations, the study examines the effects of shipping fees
Even though several studies have highlighted the and other marketing variables on the number of new
importance of customer retention as a single link in the chain customers acquired, the average order size for new cus-
of CRM, many firms have not yet understood the larger tomers, and the number of daily orders and the average
comprehensive view of the CRM process. For instance, some order size for established customers. Furthermore, to
managers still view customer acquisition and retention as account for the possible correlation between various equations
separate processes. Although most studies assess acquisition and the possibility of endogenously determined explanatory
and retention separately, the literature provides an abundance variables, the author estimates the equations using three-stage
of direction through which firms can link the two together in least squares.
order to improve their CRM process. In another study, Lewis (2006a) investigates the influ-
ence of customer acquisition promotion depth on customer
Balancing acquisition and retention. Apart from iden- retention, including repeat purchasing and duration. In an
tifying the balance in marketing effort between acquisition online retailing setting, the study adopts a logistic regression
and retention in order to maximize profitability, studies have to model whether the customer makes a subsequent pur-
addressed questions such as the following: chase within the next three quarters, using acquisition
• What are the drivers of customer acquisition? discount as an explanatory variable. Using data from the
• After being acquired, how long can the customer be expected newspaper industry, the study adopts accelerated failure
to stay with the firm? time models to model the time as a subscriber, using
• How much investment is required in order to keep the acquisition discount and its quadratic form as an explan-
firm–customer relationship alive? atory variable. The study also examines the effects of
• Given the resource constraints, how much should be spent on acquisition discount on customer asset value.
acquisition efforts versus retention efforts to maximize long- Berger and Bechwati (2001) optimize the allocation of
term profitability?
promotion budget between acquisition spending and reten-
In investigating such topics, researchers have modeled tion spending. When companies are considering one market
acquisition and retention both independently and jointly. segment and using one promotion method, such as direct

54 / Journal of Marketing: AMA/MSI Special Issue, November 2016

mailing, managers decide the allocation of existing budget and Van den Poel 2005), (3) modeling churn using two
between acquisition and retention to maximize CE. cost-sensitive classifiers (Glady, Baesens, and Croux 2009;
In modeling acquisition and retention jointly, Thomas Lemmens and Croux 2006), (4) determining the factors that
(2001) proposes a method known as a Tobit model with induce service switching (Capraro, Broniarczyk, and Srivastava
selection to account for the impact of the customer acquisition 2003), and (5) analyzing the impact of price reductions on
process on the retention process. The proposed model suc- switching behavior (Danaher 2002).
cessfully links customer acquisition to retention because the Customer win-back. It is no surprise that it is not pos-
length of a customer’s lifetime is observed conditional on sible for firms to retain all acquired customers. When cus-
the customer being acquired. The model also establishes that tomers churn, managers usually consider this indicative of the
the error term in the acquisition equation is possibly corre- end of the customers’ life cycle with the firm. However, it
lated with that in the retention equation. Finally, Reinartz, does not have to be: firms can still win the lost customers back
Thomas, and Kumar (2005) model customer acquisition, and give them a second life. Unlike new customers, lost
retention, and profitability together as a system of equations, customers have certain knowledge about the products and
using a probit two-stage least squares model and estimate it services of the company and have their own judgment on
as a system of equations. the attributes and functions of the products and services.
In summary, customer acquisition modeling is actually While it is easier to approach lost customers because they have
a probability prediction, and customer retention modeling familiarity with the firm, lost customers often switch firms
essentially concerns the duration of customer lifetime. because they are not satisfied with the product, which makes
Acquisition probability can be estimated by a probit or logit it difficult for the reacquiring firm to change customers’
model; hazard models can also be used if the timing of attitudes and persuade them to come back. Furthermore, firms
incidence is concerned. Duration data are usually right- also have to consider whether it is worth trying to bring
censored, so Tobit or hazard models are by nature suit- customers back to the firm—not all customers are worth
able estimation techniques. Researchers link acquisition and chasing after they leave the firm.
retention modeling either by specifying the correlation Once a customer is likely to churn, the firm response vis-
of the error terms in probability and duration models or by à-vis letting a customer go or winning the customer back is
specifying the joint distribution of acquisition and reten- critical. Researchers have studied this phenomenon from
tion for estimation. three aspects:
Customer churn. Determining who is likely to churn is
• Should the firm intervene in customer churn?
an essential step. This is possible by monitoring customer
• If so, how should the firm approach customers to win them
purchase behavior, attitudinal response, and other metrics back?
that help identify customers who feel underappreciated or • What elements would help firms in reacquiring lost
underserved. Customers who are likely to churn demonstrate customers?
“symptoms” of their dissatisfaction, such as fewer purchases,
lower response to marketing communications, longer time The answers to these questions will drive the optimal cus-
between purchases, and so on. It is important to note that tomer win-back strategy. Table 9 lists select literature that has
while customer retention and customer churn are similar explored the topic of customer win-back.
concepts, the need to study customer churn separately is Stauss and Friege (1999) provide a conceptual framework
rooted in the business setting. Whereas customer retention for regaining lost customers that consists of analysis, actions,
applies to both noncontractual and contractual business and controlling. The study contends that to determine cus-
settings, customer churn is relevant only in a contractual tomer value in the context of regain management, the lifetime
setting. Therefore, understanding customer churn becomes value of the terminated relationship is not an appropriate
crucial in certain customer–firm relationships. In this regard, measurement. Furthermore, Griffin and Lowenstein (2002)
the CLV-based churn models provide directions on several highlight the importance of highly trained win-back teams
topics, including the following: and provide a general outline for winning back lost cus-
tomers. This study proposes that not all churned customers
• When are the customers likely to defect? are contenders to be won back. Instead, firms should calculate
• Can we predict the time of churn for each customer? second-lifetime value (SLTV), segment customers on the
• When should we intervene and prevent the customers from basis of SLTV, and evaluate customers in each segment to
churning? determine why they defected. In addition, Thomas, Blattberg,
• How much do we spend on churn prevention with respect to a and Fox (2004) investigate the best price strategy for reac-
particular customer?
quisition of lapsed customers, using a split hazard model (or
Table 8 shows a representative set of studies that investigate censored duration model). Using data from the newspaper
the customer churn process. publishing industry, this study finds that lowering reac-
Researchers have strong interest in the causes of customer quisition prices to increase the likelihood of reacquisition is
churn and switching behaviors. They have developed various an optimal strategy. Finally, Kumar, Bhagwat, and Zhang
models that include (1) modeling churn with time-varying (2015) investigate whether lost customers are worth the
covariates (Jamal and Bucklin 2006; Van den Poel and investment in reacquisition and whether they will remain
Lariviere 2004), (2) analyzing the mediation effects of customer profitable if reacquired. The study finds that (1) the lost
status and partial defection on customer churn (Buckinx customers’ first-lifetime experiences and behaviors, (2) the

Creating Enduring Customer Value / 55

 TABLE 8
Summary of Select Customer Churn Studies
Representative Study
Studies Study Focus Type Model Type Study Setting Insights

Glady, Baesens, and Present a framework Empirical Logistic regression, Retail financial Cost-sensitive
Croux (2009) using a profit-sensitive neural network, services approaches achieve
loss function for the decision tree, cost- good results in terms of
selection of the best sensitive classifier the defined profit
classification measure and overall
techniques with classification.
respect to the
estimated profit.
Jamal and Bucklin Study the empirical link Empirical Weibull hazard Satellite television Prediction of customer
(2006) between customer churn is significantly
churn and factors such improved when
as customer service heterogeneity is added
experience, failure to the churn rates and
recovery, and payment to the response
equity. parameters.
Lemmens and Croux Investigate whether Empirical Bagging and boosting Wireless Bagging and boosting
(2006) bagging and classification trees telecommunications techniques
stochastic gradient significantly improve
boosting can improve the classification
churn prediction performance, and
accuracy. balanced calibration
sample reduces the
classification error
rate.
Buckinx and Van den Identify which of the Empirical Logistic regression, CPG retailer RFM variables are the
Poel (2005) currently behaviorally automatic relevance best predictors of
loyal customers are determination, neural partial customer
likely to (partially) network, random defection; variables
churn in the future. forests such as customer
relationship duration,
mode of payment,
cross-buying behavior,
usage of promotions,
and brand purchase
behavior are
moderately useful in
attrition models.
Van den Poel and Develop a Empirical Proportional hazard Financial services Demographic
Lariviere (2004) comprehensive characteristics,
retention model environmental
including time-varying changes, and
covariates related to interactive and
customer behavior. continuous customer
relationships affect
retention.
Capraro, Study repurchase Empirical Hierarchical logistic Health insurance After satisfaction level
Broniarczyk, and decisions that involve regression is accounted for,
Srivastava (2003) an information-based objective and
evaluation of subjective knowledge
alternatives. about alternatives
directly affects
defection likelihood.
Danaher (2002) Derive a revenue- Field Time-series Cellular service Access and usage
maximizing strategy experiment regression prices have different
for subscription relative effects on
services. demand and retention.

56 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 9
Summary of Select Customer Win-Back Studies
Representative
Studies Study Focus Study Type Model Type Study Setting Insights

Kumar, Bhagwat, Demonstrate how lost Empirical Probit, right-censored Telecommunications The stronger a
and Zhang customers’ first-lifetime Tobit, regression service customer’s first-
(2015) experiences and lifetime relationship
behaviors, the reason with the firm, the more
for defection, and the likely the customer is
nature of the win-back to accept the win-back
offer made to lost offer.
customers are related
to reacquisition
likelihood, their second-
lifetime duration, and
second-lifetime
profitability per month.
Homburg, Hoyer, Test the relationship Empirical Logistic regression Telecommunications Health of the first-
and Stock between customers’ service lifetime relationship is
(2007) first-lifetime satisfaction positively related to
and their reacquisition. reacquisition
likelihood; customer
perceptions of
fairness regarding
win-back offer are
positively related to
reacquisition.
Tokman et al. Identify the factors Quasi- Analysis of variance Auto repair and Price and service
(2007) driving win-back offer experimental maintenance service benefits provided in
effectiveness. design the win-back offer,
social capital, and
service importance
are important in
shaping customer
switch-back
intentions, regardless
of previous
satisfaction, regret, or
delight with the new
service provider.
Thomas, Study the probability of Empirical Split-hazard, Newspaper industry For the win-back offer
Blattberg, and customer reacquisition Bayesian Markov to be effective, it
Fox (2004) and the duration of the chain Monte Carlo should consist of low
second lifetime, with a promotional prices;
focus on the impact of successful
the depth of the price reacquisition should
discount. be followed by price
increases.
Stauss and Conceptual basis for Conceptual — — Retention policy in
Friege (1999) “regain management” service companies
aimed at winning back needs to be
customers who either complemented by
give notice to terminate regain management.
the business
relationship or whose
relationship has already
ended.

reason for defection, and (3) the nature of the win-back offer Customer win-back is a critical component within the overall
made to lost customers are all related to the likelihood of the CRM strategy, but it has received relatively less research
customers’ reacquisition, their second-lifetime duration, and attention than customer acquisition, retention, and churn. Firms
their second-lifetime profitability per month. must first be able to understand the drivers of customer

Creating Enduring Customer Value / 57

reacquisition, customer duration in a second lifetime, and George, and Leone 2007), (2) the identification of the
second-lifetime customer profitability before they can make behavioral drivers of CRV and the methods of soliciting
accurate strategic decisions regarding which customers to try to referrals according to each customer’s CLV and CRV scores
win back, and what offers to provide to maximize customer (Kumar, George, and Leone 2010), and (3) studying referral
profitability. behavior in a business setting, that is, BRV (Kumar, George,
and Leone 2013). The BRV is defined as the ability of and
Extending CLV to Engage with Customers degree to which a client’s reference influences prospects to
Typically, customer contribution to firm profitability oc- purchase. The BRV of each referencing client and the CLV of
curs (1) directly, through their purchases, and (2) indirectly, each referencing client and newly acquired client from the
through their nonpurchase reactions, which include referring prospect pool are measured using a three-step method
potential customers, influencing current and potential cus- comprising (1) determining whether client references
tomers in their social network, and offering review/feedback influenced the prospect’s decision to adopt, (2) determining
for improvements. In this regard, Kumar et al. (2010) the influence each client reference had on the prospect’s
propose the customer engagement value framework, which decision to adopt, and (3) computing the CLV of the
can be used to identify and evaluate the right customer, converted prospect. Furthermore, Kumar, George, and
who is successfully engaged with the firm and who generates Leone (2013) empirically determine the key drivers of BRV
value and positively contributes to the profits of the firm. The and recommend that a firm using a client-referencing
following discussion elaborates on customers’ indirect con- strategy needs to leverage a portfolio of client references
tribution to value. that includes clients with varied characteristics in order to
match the client to the prospect successfully.
Role of referrals. Studies in this area have found that
Valuing customer influences. The spread of information
customers acquired through referrals are not only less
by WOM is a critical component in converting prospects into
expensive to acquire but also more valuable for the firm, as
customers. To better understand the impact of WOM, several
compared with customers acquired through traditional meth-
studies have called for its inclusion in customer value models
ods (Schmitt, Skiera, and Van den Bulte 2011; Villanueva,
(Hogan, Lemon, and Libai 2003; Libai et al. 2010). Research
Yoo, and Hanssens 2008). For instance, Schmitt, Skiera, and
has investigated WOM propagation in the context of online
Van den Bulte (2011) examine the difference in value derived
referrals (Trusov, Bucklin, and Pauwels 2009) and the evo-
from each customer depending on acquisition method, using
lution of the network as a whole with every consecutive
customer data from a financial services firm. The study finds
instance of WOM (Robins et al. 2007). Kumar et al. (2013)
that referred customers are more profitable than nonreferred
develop a framework to capture the value of an individual’s
customers. However, Villanueva, Yoo, and Hanssens (2008)
WOM in terms of both its viral impact and the net sales that
find that customers acquired through traditional techniques are
it facilitates through two key metrics—customer influence
more valuable in the short term to some extent, but referred
effect (CIE) and customer influence value (CIV). Whereas the
customers are twice as valuable in the long term. In addition,
CIE measures the net spread and influence of a message
the value differential becomes even larger when the disparity in
from a particular individual; the CIV calculates the monetary
acquisition costs is considered, due to the considerably lower
gain or loss realized by a firm that is attributable to a cus-
costs of referrals. Table 10 summarizes the other key contri-
tomer, through that customer’s spread of positive or negative
butions of past research in this area.
influence. The study implements the framework by creating
Kumar, George, and Leone (2007) introduce the customer
and deploying a social media strategy at an ice cream
referral value (CRV) metric, which captures the net present
retailer. By tracking these two metrics for the retailer, this
value of the future profits of new customers who purchased the
study is able to demonstrate a 49% increase in brand
firm offerings as a result of the referral behavior of the current
awareness, 83% increase in ROI, and 40% increase in sales
customer. Simply put, it represents the value of how firm-
revenue growth rate. While most firms are still struggling
initiated and firm-incentivized customer referral programs can
with social media accountability, this study effectively
improve the profitability of the customer base by acquiring
shows the importance of CIE and CIV. Although these
cost-effective prospects (Kumar, George, and Leone 2010).
early studies illustrate the importance of valuing customer
Most notably, this metric makes a distinction between the
influences, more research is required to get a deeper
customers that initiated a relationship with the firm solely
understanding of this phenomenon.
because of the referral and those that would have become
customers even in the absence of a referral. Therefore, CRV Valuing customer knowledge contributions. Customers
includes both the acquisition savings and the profits of the can add value to the company by helping elucidate customer
future transactions of customers who join as a result of the preferences and participating in the knowledge development
referral. However, it includes only the acquisition savings of process. In this regard, beta site customers that use/review
customers who would join anyway, because their future products and provide valuable feedback to firms are a great
transactions would happen even in absence of the referral, so example of customer knowledge contribution. Studies have
they cannot be attributed to the referrer. investigated the amount of value added by customers through
Research in this area has focused on (1) developing models their knowledge contributions. For instance, Füller, Matzler,
that use only a customer’s actual past referral behavior to and Hoppe (2008) find that brand community members who
compute an individual customer’s referral value (Kumar, have a strong interest in the product and in the brand usually

58 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 10
Summary of Select Customer Referral Behavior Studies
B2B
Representative Study vs.
Studies Study Focus Type Model Type B2C Study Setting Insights

Kumar, George, and Leone Understand the role and value of Empirical Logit B2B Telecommunications Firms can effectively use business
(2013) client references in a business service, financial references to pull in new customers.
context. services Rich media and similar companies
are the key drivers of success.
Schmitt, Skiera, and Van den Determine the extent of profitability Empirical Regression, B2C Banking services Referred customers (1) have a
Bulte (2011) and loyalty of referred customers. proportional higher contribution margin initially,
hazard (2) have a sustained higher retention
rate, and (3) are more valuable in the
short and long run.
Kumar, George, and Leone Determine the optimal customer Empirical, field Bayesian Tobit B2C Financial services, Firms can effectively select
(2010) targeting for referral marketing study retailing customers within segments of high
campaigns. and low CLV/CRV for referral
marketing campaigns using the
drivers of CRV (dynamic targeting).
Villanueva, Yoo, and Hanssens Establish a value-generating Empirical Vector B2B Web-hosting Marketing-induced customers add
(2008) process by modeling the interactions autoregression company more short-term value, but WOM
between new customer acquisition customers add nearly twice as much
and the growth of firm value. long-term value to the firm.
Kumar, George, and Leone Compare customer segmentation Conceptual — B2C Telecommunications Customers with high CLV are not the
(2007) according to CLV and CRV. service, financial same as customers with high CRV.
services
Creating Enduring Customer Value / 59

Ryu and Feick (2007) Determine the effectiveness of Field study Analysis of B2C MP3 players Offering a reward does increase
rewards for referral marketing. covariance referral likelihood, but the size of the
reward is not significant.
Hogan, Lemon, and Libai Quantify the advertising ripple effect. Conceptual — — Hairstyling services The WOM generated after an
(2004) advertising-motivated purchase can
be significant.
Hogan, Lemon, and Libai Devise a method to account for Empirical Nonlinear least B2C Internet banking The value of a lost customer
(2003) social effects in the management of squares changes as a function of the time in
customers. regression the product life cycle.
have extensive product knowledge and engage in product- study finds that the increases in stock price for the B2B firm and
related discussions and support each other in solving prob- the B2C firm were approximately 32.8% and 57.6%, respec-
lems and generating new product ideas. With respect to the tively. Furthermore, when the average monthly values of the
roles played by customers in this process, studies have stock price are plotted over time and compared with the actual
categorized them into two categories: information providers average values of the stock prices of the two firms, the results
and codevelopers (Fang 2008). In capturing the value con- indicate that it is possible to track the actual movement of stock
tribution through knowledge sharing, Kumar et al. (2010) prices within a maximum deviation range of 12%–13%. It is
introduce the customer knowledge value (CKV) metric as also found that the stock price of the B2B firm outperformed
the value a customer adds to the firm through his or her the S&P 500 by 200%, and the B2C firm outperformed the
feedback. The need for computing the knowledge value S&P 500 by 360%. Finally, the study also finds that the
contributed by customers has been recognized by studies B2B firm’s stock increases by 32.8% during the observation
that have posited that (1) tracking a customer’s product or period, while its three closest competitors’ stocks go up by
service expertise (which is correlated with the customer’s an average of 12.1% over the same period. Similarly, the
CLV) can be valuable in assessing CKV (Von Hippel 1986), B2C firm’s stock increases by 57.6%, while its three closest
and (2) defected customers might contribute to CKV by competitors’ stocks go up by an average of 15.3% over the
sharing their reasons for leaving, allowing the firm to same period. These findings clearly demonstrate the link-
identify service improvement opportunities and increase its age between CE and MC.
capability to detect at-risk customers (Stauss and Friege The studies discussed here sufficiently demonstrate the
1999; Tokman, Davis, and Lemon 2007). These studies power of real-time decision making that firms would gain
constitute a nascent stream of research that has much when the drivers of customer value and timely marketing
promise. interventions are carefully understood and coordinated. This
implementation would not only refine marketing actions but
Realizing Enhanced Firm and Shareholder Value also enhance value to the firm.
Customer equity represents the sum of the lifetime values
of all customers of the firm. This topic has been a subject
of constant attention; it has been shown to maximize the
Key Insights and Future Research
return on marketing investments and guide the allocation Directions
of the marketing budget (Blattberg, Getz, and Thomas Extant marketing literature has investigated the concept of
2001; Reinartz, Thomas, and Kumar 2005; Rust, Lemon, customers providing value to firms and have sought to
and Zeithaml 2004). For instance, Gupta, Hanssens, and understand the process of deriving value from customers,
Stuart (2004) show across multiple firms that customer ways of measuring it, and strategies for maximizing it. The
value can be a method of firm valuation that is as good as a current study has discussed the knowledge created by
better than traditional accounting. They also quantify the researchers thus far in understanding customer value. This
impact of firm value resulting from improvements in research has shown that value is created to and from the
retention, margin, and acquisition costs. Customer sat- customers. While this creation happens fairly regularly, this
isfaction has also been linked to higher firm value in that it process is beneficial only if it is long-lasting, which is pos-
increases immediate cash flows and creates future growth sible only when the customer perceived value (i.e., value to
options (Fornell et al. 2006; Gruca and Rego 2005; Malshe customers) and firm value (i.e., value from customers) are
and Agarwal 2015). aligned. This alignment, however, only happens over time.
Kumar and Shah (2009) propose a framework to link Furthermore, the alignment process is constantly shaped by
the outcome of marketing initiatives (as measured by CE) what we know about value and the knowledge we still seek.
to the firm’s market capitalization (MC) (as determined by When these two value sources are aligned, it leads to the
the stock price of the firm). The intuition behind this creation of enduring customer value, as opposed to just value.
framework is that the stock price of the firm is based on the The alignment is materialized through the appropriate setting
expected future cash flows of the firm. If cash flow is of prices in a manner that reflects customer and competitive
primarily generated from customers, an increase in CE (or factors. In effect, there is a constant reevaluation from the
cash flow from customers) should relate to an increase in firm’s side vis-à-vis prices to ensure the value alignment to
MC (or the stock price of the firm). Such an approach and from the customers. The setting of prices is subsequently
would answer three important questions: (1) Can marketing reflected in the development of products and services, as well
strategies that increase CE also increase the stock price of the as in the designing of marketing campaigns. Figure 3 presents
firm? (2) If so, can such increases in stock price be predicted an organizing framework that describes the process of value
on the basis of changes in CE? (3) Can the increases in the alignment.
stock prices of the two firms be attributed to shareholder value This study has uncovered some valuable insights that will
creation? be helpful in understanding the creation and communication
To answer these questions, Kumar and Shah (2009) im- of value. With regards to value to customers, this study has
plement CLV-based strategies that are designed to strengthen defined customer perceived value that incorporates both the
the CRM practices of a firm. The implementation was done “give versus get” perspective and the value-communicated
over a nine-month period in a B2B firm and a B2C firm, both aspect. Such an approach to defining and understanding per-
Fortune 1,000 companies. At the end of the implementation, the ceived value highlights the importance of thinking beyond

60 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 FIGURE 3
Ensuring Value Alignment: An Organizing Framework

What We Know What We Know

Pricing Decisions

Perceived Customer Customer

Benefits
Attributes Acquisition Retention
Customer Alignment Profitable
Products Firm Marketing
Perceived Customer
and Value Programs
Value Engagement Customer Customer
Services
Perceived Undesired Churn Win-Back
Cost Consequences

What We Would Like to Know What We Would Like to Know

• Impact of products’ intangible aspects on perceived value • CLV for a basket of goods
• Value of privacy • Effect of customer attitudes on CLV
• Source of perceived value • Impact of macroeconomic trends on CLV
• Nature of relationship on value creation
• Customer engagement and privacy
• Level of engagement and successive generation of products

the value component, to include the costs given up for the For instance, consider the case of a professional sports
benefits that are being sought. Following this definition, this team. Sports fans would like to get to the sporting ven-
study has identified three tasks for measuring customer ues in time for the game and the other attractions offered.
perceptions of value: measuring overall perceived value, However, a game day brings with it the problems of traffic
measuring the associated underlying attributes and benefits, and changing weather conditions, which create challenges
and determining the relative weights of the attributes/benefits in finding the fastest route to the venue. With a key goal of
linked to overall perceived value. With respect to value from ensuring fan satisfaction, a sports team could consider
the customers, this study has identified that a forward-looking providing a wearable device to fans that would inform them
metric such as CLV is ideal in metricizing customer value of traffic conditions, road closures, and weather updates,
contributions. Furthermore, this study has observed that to in addition to team-related and game-related information.
create net value for the firm, the perceived value that cus- Such a device from the team management, apart from being a
tomers receive must be aligned with the resources spent on piece of fan merchandise, would also keep fans engaged with
the customers, through the adoption of forward-looking metrics. the team. The technology to create such a device is available
To this end, CLV is identified as the metric (among through IoT, but how can firms create value from such an
the popularly used metrics) that most accurately com- offering? To begin with, what value-based metric can be used
putes the net present value of a customer according to his or to identify the fans who would receive such a device? Can
her future transactions with the firm, after accounting for such a device capture fan satisfaction effectively? How would
revenue, expense, and customer behavior. Various CLV- the team view fan satisfaction at the venue and fan sat-
based strategies have been proposed that firms can use to isfaction getting to and coming from the venue? In other
maximize value from customers after computing CLV. words, would an unpleasant experience away from the venue
Table 11 lists the key insights from this study. adversely influence a fan’s satisfaction at the game and
Looking ahead, we would like to offer three key areas that subsequently lead to a decline in loyalty? Furthermore, what
could spur future research. First, we believe the Internet will insights could the team gain regarding fan experience on
attain even more dynamism in terms of the uses, abilities, and game day and the ways to mitigate any loss in following?
opportunities it presents. In this regard, the Internet of Things How could the team capture these fan sentiments and use the
(IoT) is bound to offer several avenues for researchers and device to offer a valuable proposition that both engages the
practitioners to identify and maximize ways to create value for fan with the team and ensures value to the team through
firms and customers. With its origins in the supply chain consistent ticket sales?
context (Ashton 2009), the IoT now encompasses uses in Second, health and fitness consciousness has been on the
virtually all areas, including health care, urban planning rise, with fitness studios offering varied programs to suit
and management, emergency services, construction, envi- every customer need. These paid options provide several
ronment monitoring, lifestyle, and sports management. The customization options for users to design their visit and
ready applicability to a wide range of industries is largely due structure their fitness regimen. These options include
to the connectivity to media and transportation channels the scheduling visit times (some studios are even open 24 hours
IoT provides to firms. a day), personal training, designing meal plans, and studio

Creating Enduring Customer Value / 61

 TABLE 11
Key Insights from This Study
Value to Customers Value from Customers

• Customer perceived value is different from quality, perceived • Firms need to align the perceived value customers receive with
benefits, and satisfaction. This article defines perceived value the resources spent on them through the adoption of forward-
as the customer’s net valuation of the perceived benefits looking metrics, to create net value for the firm.
accrued from an offering that is based on the costs they are • Unlike backward-looking metrics, forward-looking metrics
willing to give up for the needs they are seeking to satisfy. focus on the customer, rather than the product, and can be
• Benefits and undesired consequences are the results of buying used to understand current clients as well as prospects.
and consuming the offering (i.e., the attributes of the offering), • CLV calculates the net present value of a customer according
and these may accrue directly or indirectly and may be to his or her future transactions with the firm, after accounting
immediate or delayed. for revenue, expense, and customer behavior.
• Perceived value is measured according to attributes, which • CLV can be modeled at the aggregate level or the individual
may be objective attributes (i.e., produced attributes) or customer level.
perceived attributes (i.e., experienced attributes). • CLV-based strategies can be used not only to maximize
• Approaches to modeling consumer preferences have adopted revenue, minimize costs, or both, but also help with customer
two types of methods: compositional and decompositional. acquisition and retention, balancing acquisition and retention,
While the former is a set of explicitly chosen attributes/benefits customer churn, and customer win-back.
that are used as the basis for determining overall value • The customer contribution to firm profitability occurs directly,
evaluations, the latter attempts to infer underlying utilities from through customer purchases, and also indirectly, through
observed choice. actions that might include referrals or influencing others via
• Firms can create perceived value for customers through (1) social networks, customer reviews, and feedback to the firm.
leveraging their own capabilities, (2) aligning with customers’ • The concept of customer engagement value helps in the
perception of what is valuable for them, and (3) claiming a identification and evaluation of the right customer, who is
differential advantage (e.g., premium or margin) over successfully engaged with the firm, who generates value, and
competitive offerings. who positively contributes to the profits of the firm.
• Customers form a judgment of value as a function of perceived,
not actual, benefits and costs.
• Measuring customer perceptions of value involves three key
tasks: (1) measuring overall perceived value, (2) measuring the
associated underlying attributes and benefits, and (3)
determining the relative weights of the attributes/benefits linked
to overall perceived value.

amenities, among others. In addition, fitness studios now Finally, household purchase decisions have received
have a strong online presence through blogs and social substantial research attention (e.g., Epp and Price 2008;
networking sites. They now interact with customers and Gupta, Hagerty, and Myers 1983). The decision-making roles
fitness enthusiasts by exchanging fitness-related information. typically include influencers, gatekeepers, deciders, buyers,
Consumers also have access to unpaid options such as fitness users, and disposers. In situations in which the head of the
videos and predesigned fitness routines available on the household is the decider and buys a good, the product is
Internet. While this option lacks customization, being intended either for personal use or common use. Household
available for free compensates for this dearth. Perhaps the consumption is also known to be affected by scale econo-
major attraction of the unpaid option is the availability even mies, wherein the utilization rate of a good can be raised by
during travel. However, some fitness studios also now have increases in family size (Lazear and Michael 1980). In such
dedicated members’ websites that offer health tips, along conditions, for the purposes of identifying value and designing
with tools to manage workout schedules through videos and customer strategies, firms would benefit if they had answers to
instruction manuals, in addition to regular studio admission. questions such as the following: (1) Is the good being pur-
From the perspective of a fitness studio, the challenge of chased for personal use or common use? (2) Who will be
such a site is twofold. First, how does the firm present its paying for the good—the individual or the family? (3) Will a
value proposition vis-à-vis other competing studios (e.g., trade-off be necessary to buy the good, either by the individual
www.my360gym.com)? Second, how does it fight the com- or the family? (4) In the case of a common good, will the
petition from the unpaid fitness options? In such cases, good hold the same value to all members of the household,
what other novel and innovative programs can be offered by and if not, how can the disparity be alleviated? (5) In the case
fitness studios to attract customers? Furthermore, how can of a common good, will there be any design changes necessary
studios design, price, and offer online fitness material (text, to satisfy all the users? (6) How should the media mix be de-
audio, and video) that can effectively compete with the existing signed such that the influencers of the household are reached
unpaid options? In addition, can studios exist only in the online with the right message, in the right format, and at the right
format (e.g., www.booyafitness.com) without any physical time? (7) Given these questions regarding the decision-making
presence, and if so, how would the value then be determined roles, the usage of the good, and the awareness of the good,
for a fitness customer? should firms compute the value as a comprehensive amount

62 / Journal of Marketing: AMA/MSI Special Issue, November 2016

 TABLE 12
Future Research Directions
Value to the Customers Value from the Customers

• The effect of customer costs and consumer needs on • While Sunder, Kumar, and Zhao (2016) have bridged the gap in
perceived value has been studied largely from the viewpoint of literature by proposing a structural approach to measuring CLV
a product’s tangible features. Intangible aspects, such as, for that incorporates the choice, timing, and quantity decisions of
instance, the network effect on perceived value, have not been consumers to assess CLV in the CPG setting, future studies in
explored. Network effects have been addressed in the “value this area can look into expanding the analysis for a basket of
from customers” perspective (e.g., Kumar et al. 2013; Robins goods, and including stochastic shocks to the system that
et al. 2007) to strengthen profitable customer–firm might influence the consumption.
relationships. Future research could explore individuals’ • Literature has shown that customer behavior influences CLV
perception of value and its constituents in a network setting (Reinartz and Kumar 2003) and that customer attitudes
that exhibits influences across customers. influence customer behavior (e.g., Anderson 1998; Hogan,
• Studies of undesired consequences have explored the realm Lemon, and Libai 2003), which in turn influences CLV. But do
of privacy concerns primarily in an online business setting. customer attitudes directly influence CLV? Answering this
However, a more comprehensive treatment of the value of question is bound to provide insights into the reasoning behind
privacy is required to better our understanding in terms of (1) customer behavior and how they affect customer profitability.
quantifying the overall value of privacy, (2) determining the • While most CLV implementation studies account for marketing
value of personal information that customers will be willing to and financial variables, the macroeconomic trends remain
give up for products with lower prices, and (3) establishing the unaccounted for. What approaches can we adopt to account
offline product categories that privacy costs apply to for macroeconomic factors such as GDP growth rate, rate of
customers. unemployment, and so on, in the CLV implementation to make
• In identifying the source of perceived value, while usage, costs, it more accurate and reflective of market realities?
and profits involved have been considered, the nature of • Although the benefits of implementing customer engagement
product has not been considered. Future studies could focus have been demonstrated, we need to know the nature of the
on the source of perceived value—simple product design or relationship between level of engagement and value creation
sophisticated product design. (e.g., linear or inverted U shaped).
• Furthermore, what is the role of customer engagement in
customer privacy issues? That is, if customers are engaged
more, will they be less sensitive to sharing private information?
• In realizing value through customer engagement, is it possible
to identify which form of engagement will work with a certain
type of customer? That is, can a customer provide value in all
forms of engagement?
• Research has identified other forms of engagement, such as
gifting behavior. Bhagwat and Kumar (2015) propose that
encouraging customers to take part in gifting behavior is one
way to effectively engage them with the firm and to
consequently see profitable outcomes. In this regard, are there
any other forms of engagement that can lead to profits for the
firm?
• When firms launch products, the performance of the previous
generation of products and the overall firm performance are
challenged. For instance, whenever Apple launches a product
(e.g., iPhones), the prices of the previous-generation products
are lowered, prompting many consumers to wait for such a
price drop to buy the earlier version. In this regard, does the
level of engagement facilitate the adoption of successive
generation of products, and if so, how?
• CLV maximization can also be viewed from an optimization
standpoint. Firms often plan and change their resource inputs.
When the elasticities of factors such as customer acquisition,
retention, and win-back are considered, the resulting
optimization may lead to better-informed resource planning.
• Despite the prevalence of coalition loyalty programs, they have
received little attention in academic research. Future studies
could investigate the profitability drivers of such loyalty
programs.
• The identification of the lifetime value for dealers (e.g., dealer
lifetime value) would help firms such as car dealerships to find
a reliable method of (re)allocating scarce marketing resources
to the “best”-performing dealerships.

Creating Enduring Customer Value / 63

that accounts value derived by all the users of the household, Future studies could also focus on identifying the nature
or as a summation of individual values of all the users? of the relationship between level of customer engagement and
This study has also presented specific research areas value creation (e.g., linear or inverted U shaped). This will
regarding value to and value from the customers. With respect help in refining the engagement strategies aimed at enhanc-
to value to the customers, for instance, this study recom- ing customer value creation. Furthermore, identifying newer
mends looking into the network effects because the effect of forms of engagement would expand the number of ave-
customer costs and consumer needs on perceived value has nues through which a firm could establish engagement. For
been studied largely from the viewpoint of a product’s instance, research has determined that encouraging cus-
tangible features, while the intangible aspects, such as the tomers to take part in gifting behavior effectively engages
network effects, have been explored by only a few studies them with the firm and consequently leads to higher profits
(Kumar et al. 2013; Robins et al. 2007). Therefore, a more (Bhagwat and Kumar 2016). Future studies could investigate
detailed investigation into this is required to broaden our other forms of engagement that, when encouraged among
understanding on delivering customer value. customers, can lead to profits for the firm.
Another issue that requires research attention is the case An area of loyalty that is gaining significant traction is
of privacy. In order to use online services, customers are coalition loyalty. Such a program brings together two or more
required to share their personal information instead of being companies to offer loyalty incentives across a wide spectrum
charged a fee. In effect, while customers get to use the of retail and service offerings (e.g., Star Alliance in the air-
services for free, the cost incurred is sharing personal line industry). These programs provide significant advan-
information. Amid this growing digitization climate, firms tages such as shared operational costs, higher cross-selling
now will have to understand (1) the value of shared private potential, and a symbiotic relationship among participating
data, (2) the business settings in which such an option will companies (Lee, Lee, and Sohn 2013). Limited research in
(and will not) work, and (3) how the value proposition can be this area has found that service failure by one partner has a
communicated to customers. Future research along these spillover effect on other partners (Schumann, Wünderlich,
lines will be helpful in understanding the drivers of value in a and Evanschitzky 2014), and positive spillover effects from
digitized format and in customizing offerings to maximize one partner are reflected in cross-buying of other partners
value to and from customers. (Lemon and Von Wangenheim 2009). Future research could
With respect to value from customers, this study has look into the profitability drivers of these programs to gain a
identified several areas for future research. For instance, better understanding of the outcomes.
while a structural approach to measuring CLV that incor- Another area of research opportunity lies in determining
porates the choice, timing, and quantity decisions of con- the optimal balance of resource allocation between tradi-
sumers to assess CLV in the CPG setting has been proposed tional and new media, and the role of each in maximizing
(Sunder, Kumar, and Zhao 2016), more studies in this area ROI. The challenge here for researchers lies in determining
are needed to formalize this learning. Specifically, studies the optimal mix of media options and how they should be
that can expand the specific product-level categorization to prioritized among the customer deciles in order to max-
include a basket of goods will facilitate the study of CLV imize ROI. When the rebalancing of resources is linked
from a retailer’s perspective. Such studies will likely result in back to customer acquisition, retention, and win-back ini-
(1) further refinements to the drivers of customer and retailer tiatives, the results would lead to better informed resource
profitability, (2) better customization of product offerings, planning.
and (3) targeted store-level product promotions. The identification of lifetime value of distributors/dealers
Another area that could be fruitful for research on CLV (e.g., car dealerships) is another area with opportunities for
involves accounting for macroeconomic trends and new future research. In the case of U.S. car dealerships, auto
product introductions by competitors. Specifically, future manufacturers sell their cars through exclusive dealerships
studies should look into identifying approaches that can be and/or dealerships that carry multiple brands. Here, the auto
adopted to account for macroeconomic factors such as GDP manufacturers need to find a reliable method of (re)allocating
growth rate, rate of unemployment, inter- and intracountry scarce marketing resources to the “best-”performing dealerships.
variations, consumption and investment spending, and inter- In this regard, creating a “dealer lifetime value,” classifying
national trade balance in the CLV implementation to make it dealers as “high-value” or “low-value” and placing them in
more accurate and reflective of market realities. In this regard, appropriate deciles, would help manufacturers solve the
Kumar and Pansari (2016) have shown that national cultural reallocation problem. Table 12 provides a compilation of
dimensions affect the drivers of purchase frequency and topics that might be considered for future research.
contribution margin and that economic factors influence the This study has discussed the major developments in the
components of CLV directly. In effect, the relative effects of CLV area of research and highlighted potential future re-
the drivers of CLV are influenced by the differences in the search directions. Specific refinements and improvements
macroeconomic trends of the countries as well as in the cul- can be expected in (1) approaching measurement of CLV, (2)
tures of the countries. However, more studies across countries understanding the drivers of CLV, and (c) gathering more
with different levels of economic stability/performance are empirical evidence regarding the various business applica-
needed to more thoroughly understand this result. These tion of CLV. When these developments feed into real-time
insights will be of use to firms that have international oper- decision making for marketers, marketing’s accountability to
ations to plan their resource allocation well ahead of time. the corporate boardroom will have been enhanced.

64 / Journal of Marketing: AMA/MSI Special Issue, November 2016

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