Customer Lifetime Value Paper

Building customer-enterprise relationships, differentiating customers, and calculating customer value are effective tools because they help create customers for long periods for time. For example, customer lifetime value (CLV) calculates the flow of money needed for building those loyal customer-enterprise relationships. Services or products are provided upfront to the customer without concern of enterprise’s profits or initial costs. Gaining customer loyalty is top priority. These customers are locked into an agreement for a certain time frame, such as contractual agreements. Businesses spend money upfront and worry about the profits later in the hopes to gain customer loyalty in the long run, which increase profits. It also helps

Netflix secured customers for the streaming services. According to Fader in 2010, Netflix spends $18.21 on each new customer who pays $7.99 per month (“The customer lifetime”, 2011). Although subscribers dropped off, Fader believes Netflix will regain those customers because there are no other competitors in the market (“The customer lifetime”, 2011). Customer lifetime value may be ineffective when it comes to predicting events or customer assumptions or behaviors. Customer may not stay long enough for the business to reap a profit. The tool of differentiation of customers is also important because “80 percent of any enterprises business comes from just 20 percent of its customers” (Peppers & Rogers, 2011, p.135). This is known as the Pareto principle (Peppers & Rogers, 2011). These percentages can vary depending on the nature of the business. The point to make is that some customers have greater value than other customers (Peppers & Rogers, 2011). Also, businesses can rank their most valuable customers. Proxy variable known as RFM helps businesses rank their customers behind the scene (Peppers &