Introducing a Novel Model to Determine CLV

Abstract

Customer Relationship Management (CRM) is a productive tool for monitoring the customer and recognizing their characteristics, behaviors, and his/her requirements and anticipating his/her reactions in order to establish a long term and strong relation with customer. CRM is a business strategy selecting and managing the most valuable customer relationships. CRM includes different parts and dimensions that covers the whole stages of business from marketing to conclusion of contract, R&D, product/service design, sale and period after that. One of the important tools applied in CRM is Customer Lifetime Value (CLV). CLV allocates a quantitative value to each customer or a specific group and ranks them with this quantity. Different methods have been introduced to calculate this quantitative value. This paper tries to analyze all mentioned methods and presents the weakness and strength of each method. The most weakness of the typical method is not to concentrate on the future value of the customer. In order to rectify the weakness, in this paper an innovative model which combines two methods of RFM (which considers qualitative factors) and ROI (which considers financial factors) has been introduced. The validation of the model has been accomplished based upon real case study of one of the Iranian Insurance Companies.