|
|
 Ratings
|
|
|
| Reviewed: |
Mar 26, 2004 by Business Editorial Board |
| Overview: |
This site provides an online calculator for estimating the lifetime value (LTV) of an individual customer. This calculation is based on average purchase, number of purchases per year, number of referrals obtained from that customer, and percent of those referrals that complete purchases. |
| Learning Goals: |
The major goal of this module is to provide a tool to support estimating customer lifetime value. It also enables students to do ?what if? analyses so that they will gain a practical understanding of the value to a business of retaining customers |
| Target Student Population: |
Undergraduate or graduate students in a database marketing, retail, marketing management, or e-commerce/e-marketing class. This calculator could also be used by marketing practitioners who were interested in quickly calculating customer lifetime value. |
| Prerequisite Knowledge or Skills: |
No specific academic knowledge is required to use the tool. However, a knowledge of basic customer information such as average sale, number of sales, profit/loss, etc. is required to use the caluclator. |
| Type of Material: |
This website is an online calculator. |
| Recommended Uses: |
This site would best be used in a setting where an instructor wants to briefly discuss customer lifetime value and provide a quick demonstration tool. It would not be good to use in a setting where an instructor wants to thoroughly explain/discuss/demonstrate customer lifetime value. However, it could be used in class or as a homework assignment, either individually or as a team assignment. It also could be used on conjunction with other assignments, e.g., students could use the Lifetime Value calculator to estimate future project market share in a business simulation |
| Technical Requirements: |
Internet browser access is required to use the calculator. |
|
|
|
| Strengths: |
The most important strength of this calculator is that it makes the idea of customer value more concrete, because it allows students to calculate multiple ?what if? situations to see what the impact of satisfied (or dissatisfied) customers is on business profitability. |
| Concerns: |
This module lacks content and only provides a calculator tool. In its current configuration this tool oversimplifies the concept of customer lifetime value. There are many more elements to calculating customer lifetime value than average sales, number of sales per year and referrals. The calculator, for example, assumes 100% customer retention which is inappropriate. It also does not account for other revenue sources nor does it deal with the impact of loyalty programs, cost components of maintaining and acquiring customers, the future value of sales, etc. A student or company who only used this tool could make serious errors in calculating customer lifetime value.
Nonetheless, the calculator?s value would be most clearly realized when it is used in the context of an assignment in a principles of marketing, marketing management course, or perhaps when used as a resource to support decisions in another simulation (e.g., Markstrat). While the calculator does an adequate job of illustrating LTV, for more advanced classes, e.g., a undergraduate capstone marketing management class or an MBA level marketing strategy class, the calculator seems to be a bit simplistic. |
|
|
Potential Effectiveness as a Teaching Tool |
Rating:   |
|
| Strengths: |
The primary strength of this calculator as a teaching tool is that leads students to explore the value of customers ? they are able to use the calculator to see what the consequences are of cultivating (or not) cultivating customers. The calculator could be used as an introduction to discuss the importance of repeat sales and referrals to a business' success. It could also be used as a jumping off point to discuss customer lifetime value and the importance of customer retention. |
| Concerns: |
The main weakness of this calculator as a teaching tool is that it only considers two factors that lead to the value of a customer to a business, i.e., the number of referrals and the proportion of referrals that actually purchase from a business. As mentioneded previously, it oversimplifies the concept of customer lifetime value. There is so much more to calculating LTV than what is asked for in the calculating tool. |
|
|
Ease of Use for Both Students and Faculty |
| Rating: |
|
| Strengths: |
The calculator is very easy to use, highly interactive, and the instructions are clear. The faculty member and student can easily enter the numbers and press the calculate button and derive the customer lifetime value number for the period identified. |
| Concerns: |
It is an oversimplified tool that could mislead people unfamiliar with customer lifetime value. |
|
|
