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The concepts of customer lifetime value (CLV) and customer equity (CE).
Abstract
Subject area
The concepts of customer lifetime value (CLV) and customer equity (CE).
Study level/applicability
BA, MBA, MSc courses: customer equity, marketing metrics, marketing plan, marketing research. Because students are asked to complete a customer lifetime value analysis based on a range of financial and non-financial data, students will need at least a modest level of proficiency in dealing with a few basic financial accounting concepts.
Case overview
In Chile, a law passed in 2008 introduced a bidding process to be held every 24 months in the pension industry. The tender mechanism was introduced as part of a reform aimed at reducing the commissions charged by pension fund administrators and at making it easier for new players to enter the market. In early 2009, Daniel Ugarte wondered if it was finally the right time for his firm to enter the pension industry. Ugarte was asked by the board to help chart a direction for the firm. The winning criterion was the lowest management fee (commission) paid by the affiliates. The main focus of the case is a quantitative assignment that asks students to calculate how customer lifetime value (CLV) and customer equity (CE) would be affected by the commission offered.
Expected learning outcomes
These include: understanding the concepts of customer lifetime value (CLV) and customer equity (CE) and the importance of maximizing a customer's lifetime value for the firm by calculating the CLV and the CE based on a combination of financial and non-financial data.
Supplementary materials
Teaching notes are available. Consult the librarian for access.
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Julie Hennessy and Evan Meagher
This exercise is one in a series intended to help students learn how to perform financial calculations in marketing contexts.Maru Keitou, a decorated former collegiate softball…
Abstract
This exercise is one in a series intended to help students learn how to perform financial calculations in marketing contexts.
Maru Keitou, a decorated former collegiate softball player with a PhD from Oxford University, ran Maru Batting Center in the Roppongi district of Tokyo's Minato ward. She had a deep knowledge of the game and of her customers, but she lacked a marketing background. She had recently signed up for a hosted customer relationship management service that would allow her to track the cost of acquiring and serving each of her four main customer segments. Using this data, she could determine which segments to target in the upcoming year.
The exercise describes the use of calculations of customer acquisition cost, retention rates, and customer lifetime value in picking between market segments and various options for activities to acquire customers.
Maru Keitou, a decorated former collegiate softball player with a PhD from Oxford University, ran Maru Batting Center in the Roppongi district of Tokyo's Minato ward. She had a deep knowledge of the game and of her customers, but she lacked a marketing background. She had recently signed up for a hosted customer relationship management service that would allow her to track the cost of acquiring and serving each of her four main customer segments. Using this data, she could determine which segments to target in the upcoming year.
The exercise describes the use of calculations of customer acquisition cost, retention rates, and customer lifetime value in picking between market segments and various options for activities to acquire customers.
After completing the exercise, students should be able to:
Calculate customer acquisition cost
Determine customer break-even
Calculate and explain customer lifetime value
Calculate customer acquisition cost
Determine customer break-even
Calculate and explain customer lifetime value
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Rajkumar Venkatesan and Daniel Shively
“This case is an updated version of ““Netflix Inc.: DVD Wars”” (UVA-M-0763), and was written as a replacement for it.A financial analyst is asked to appraise the value of…
Abstract
“This case is an updated version of ““Netflix Inc.: DVD Wars”” (UVA-M-0763), and was written as a replacement for it.
A financial analyst is asked to appraise the value of Netflix's stock at a time of unprecedented turmoil for the company. This case introduces customer lifetime value (CLV) as a useful metric for subscription-based businesses.”
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Phillip E. Pfeifer and Roy L. Perticucci
Crutchfield, a large U.S. mail-order firm specializing in consumer electronics and personal computers, must evaluate the results of a recent "prospecting" mailing to a rented list…
Abstract
Crutchfield, a large U.S. mail-order firm specializing in consumer electronics and personal computers, must evaluate the results of a recent "prospecting" mailing to a rented list of names. A determination of the mailing requires the calculation of the lifetime value of the new customers acquired. Case data on repurchase probabilities (broken out by recency and frequency) support such a calculation. The case can also be used to introduce the RFM (recency, frequency, monetary value) framework for valuing customers.
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The focus of the case is on the concepts of customer lifetime value (CLV) and customer equity (CE). Monitoring, measuring and maximizing CLV and CE have become a key priority for…
Abstract
Subject area
The focus of the case is on the concepts of customer lifetime value (CLV) and customer equity (CE). Monitoring, measuring and maximizing CLV and CE have become a key priority for all marketers. Instructors can introduce these concepts and its key components.
The main focus of the case is a quantitative assignment that asks students to analyze the convenience for the existing five AFPs (Administradora de Fondos de Pensiones, Pension Fund Administrator) of winning the tender. The use of CLV and CE measurements is particularly relevant. Students need to estimate the impact of pricing on the CLV and CE of the existing five AFPs.
Study level/applicability
BA, MSc, MBA Courses: CE, Marketing Metrics, Pricing. The case can also be used in courses that focus on Marketing Plan, Marketing Research or Services Marketing.
Case overview
In early 2009, Valentina Vial was given the assignment to develop the pricing strategy of Alianza to enter the pension industry. The company will propose a commission fee to compete with the country's existing five AFPs. Whichever AFP presents the lowest commission will be awarded the tender. When there are several competitors, the company must guess each competitor's likely pricing decision. In the analysis of the convenience for the existing five AFPs of winning the tender, the use of CLV and CE measurements is particularly relevant. Valentina Vial needed to estimate the impact of pricing on the CLV and CE of the existing five AFPs.
Expected learning outcomes
Understand the concepts of CLV and CE and the importance of maximizing a customer's lifetime value for the firm by calculating the CLV and the CE based on a combination of financial and non-financial data.
Illustrate the importance of adopting a long-term strategic perspective (using CLV and CE) in choosing a pricing strategy. Once a firm commits to a pricing strategy, it is difficult to shift course. Given this, the choice of pricing levels should be informed by long-term strategic thinking, including consideration of potential competitive pricing decisions.
Supplementary materials
Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.
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Phillip E. Pfeifer and Robert M. Conroy
Intended for MBAs, this case concerns the valuation of Netflix, Inc., which was the largest U.S. online movie rental subscription service in early 2009. After reviewing Netflix's…
Abstract
Intended for MBAs, this case concerns the valuation of Netflix, Inc., which was the largest U.S. online movie rental subscription service in early 2009. After reviewing Netflix's historical financial and customer relationship performance, this case presents three approaches for valuing the firm in early 2009. The first is a company-level discounted cash flow analysis based on pro forma projections of revenues, earnings, and cash flow. The second approach attempts to judge whether Netflix's prevailing market value was reasonable by comparing selected company ratios with those of comparable companies. The final approach is based on the assumption that Netflix's enterprise value (EV) was the sum of its current and future subscribers' values (discounted present values, to be exact). There is also a spreadsheet available for students (UVA-F-1610X).
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Ronald T. Wilcox and Kelly Brandow
Specializing in local, organic meat and produce, Retail Relay developed a new business model for online grocery shopping and delivery. Having succeeded in the small market of…
Abstract
Specializing in local, organic meat and produce, Retail Relay developed a new business model for online grocery shopping and delivery. Having succeeded in the small market of Charlottesville, Virginia, it was considering expanding to other, larger markets. This case focuses on customer lifetime value analysis and how this analysis, when paired with previous experience with consumer promotions, can guide thinking in developing the best strategies and tactics for entering new markets.
Abstract
Subject area
Marketing.
Study level/applicability
This case can be used in an international marketing course or module, at executive or MBA level, and is particularly suitable as a case on global branding.
Case overview
MTN was launched in 1994 as a leading provider of communication services, offering cellular network access and business solutions. After building up a successful operation in South Africa, achieving a market share of some 38 per cent (second only to Vodacom, the dominant mobile telecommunications provider), the group began its expansion into the rest of Africa in 1998. It was the first South African cell phone network operator to do so. The objective of this expansion was, despite the uncertain political and regulatory environment, to take advantage of the market opportunities in Africa, given its underdeveloped telecommunications infrastructure and the transferability of MTN's skills into other African countries. At the time of the case (June 2005), MTN had established itself in eight different African countries, with a subscriber base of 14.3 million in South Africa and 2.9 million in the rest of Africa, with plans for further growth in the territory and elsewhere. As a result of this international expansion, a major challenge was to ensure consistent branding in the different countries.
Expected learning outcomes
The expected learning outcomes are: to explore the challenges of international expansion into new markets; to understand global brand building strategies, how to create a consistent identity and how to build a services brand; to understand the challenges of implementing a marketing change strategy across different countries with different cultures and with employees with different agendas and to highlight the importance of people in providing a service and in delivering the brand promise.
Supplementary materials
Teaching note.
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The director of marketing and operations for a financial newsletter must deal with a host of issues that surround the practice of renting mailing lists and soliciting new…
Abstract
The director of marketing and operations for a financial newsletter must deal with a host of issues that surround the practice of renting mailing lists and soliciting new subscribers by direct mail. The case can be used to introduce the concept and calculation of customer lifetime value.
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Jeremy Chapman Hutchison-Krupat, Tim Kraft and Elliott N. Weiss
This case is an updated version of “Netflix Inc.: DVD Wars” (UVA-M-0763), and was written as a replacement for it.A financial analyst is asked to appraise the value of Netflix’s…
Abstract
This case is an updated version of “Netflix Inc.: DVD Wars” (UVA-M-0763), and was written as a replacement for it.
A financial analyst is asked to appraise the value of Netflix’s stock at a time of unprecedented turmoil for the company. This case introduces customer lifetime value (CLV) as a useful metric for subscription-based businesses.