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Analyzing Customers’ Desired Service Output Levels

In marketing, customer lifetime value (CLV or often CLTV),  or life-time value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.

It can also be defined as the monetary value of a customer relationship, based on the present value of the projected future cash flows from the relationship. It is an important concept in that it encourages firms to shift their focus from quarterly profits to the long-term health of their relationships. Customer lifetime value is an important number because it represents an upper limit on spending to acquire new customers. For this reason it is an important element in calculating payback of advertising spent in marketing mix modeling.

There are three main approaches to market segmentation:

A priori segmentation, the simplest approach, uses a classification scheme based on publicly available characteristics — such as industry and company size — to create distinct groups within a market. However, a priori market segmentation may not always be valid, since companies in the same industry and of the same size may have very different needs.

Needs-based segmentationis based on differentiated, validated drivers (needs) that express for a specific product or service being offered. The needs are discovered and verified through primary market research, and segments are demarcated based on those different needs rather than characteristics such as industry or company size.

Value-based segmentation differentiates by economic value, grouping customers with the same value level into individual segments that can be distinctly targeted.