Customer Lifetime Value: Fundamentals
Customer lifetime value (LTV) is one of the cornerstones of database marketing. It is the metric by which we quantify the customer's long-term value to the firm. This chapter focuses on the fundamental methods for calculating lifetime value, centering on “simple retention models” and “migration models.” We present a general approach to calculating LTV using these models, and illustrate with specific examples. We also discuss the particular case of calculating LTV when customer attrition is unobserved.
KeywordsHazard Rate Hazard Function Retention Rate Recency State Migration Model
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