Sales and Marketing needs to make choices about where to invest: whom to encourage or discourage, whom to offer premium support to, and a myriad of other decisions. The scarcity of resources or simple misalignment means that not every customer is necessarily a good one. So, how do we define good?
In this context value is defined in terms of profitability – gross, net, or contribution – and not sales. Total revenue masks too many costs to be useful in investment decisions. The objective here is to explore ways that create differentiation or spread between customers so that different strategies and tactics can be implemented.
A customer’s lifetime value (CLV) is often used as the basis of discriminating between customers. The premise is simple: profitable customers yield a profitable business. While we may know what a customer has done for us lately, the important question is: what will she do going forward?
Rather than dusting off the crystal ball, this series looks at three different categories for estimating the future value of a customer and describes a total of nine methods using customer behavior and interactions. Each of the following three areas are described in separate posts.
- Time Series – the simplest, and often overlooked, type of forecasting
- Segment Migration – the idea that some people migrate from one band of profitability to another over time
- Predictive Models – the use of explanatory variables to identify the specific levers that drive value
I'll save the idea of predicting the Stanley Cup and NBA finals for the Ouija Board....