Customer equity modelling

Customer equity modelling

Customer equity is synonymous with Customer Lifetime Value (CLV), defined as the net present value of the current and future loyal customer base.

Through a process of successful customer acquisition, retention and expansion, companies may directly impact CLV and increase company value. Customer equity modelling assists clients along each step of this process.

Customer equity modelling helps clients design optimal pricing and marketing strategies to maximise customer acquisition, retention and expansion.

Acquisition

Customer acquisition refers to the process of converting prospective consumers into new customers for the business. Only by successfully acquiring customers new to the market and/or stealing from competitors can companies start the process of building a loyal customer base. 

Acquisition models are central in this regard and use Hierarchical Bayesian discrete choice modelling techniques to identify the characteristics and drivers of current profitable and non-profitable customer groups. This information is then used to more efficiently target prospective new consumers. 

Acquisition models are specifically designed to help clients set pricing and marketing strategies to optimally manage new customer prospects. 

Retention

Ensuring the longevity of customer relationships is critical to maximizing CLV and long-term profitability. Retention modelling applies Hierarchical Bayesian discrete choice models to customer level data to quantify the factors and attributes driving the probability of defection. This plays a central role in identifying those elements determining the likelihood and incidence of individual customer churn and how to minimise it.

Retention models are particularly suited to financial, contract or subscription based industries, where strategies appropriate for retaining loyal customers are often very different to those relevant for acquiring new ones.

Retention models complement acquisition analysis and play a central role in identifying price and marketing strategies that minimise customer churn at maximum value.

Expansion

Customer expansion is the final step in the process and consists of increasing sales via a combination of cross-selling, up-selling and/or selling greater quantities of existing products and services. This increases the baseline lifetime value of the acquired (and retained) customer and plays an important role in maximizing CLV. 

Models for add-on selling address a variety of business questions such as the optimal range and quantity of products in the client portfolio, the timing of new product introductions and customer response to product offerings through specific off and online channels.

Marketscience Consulting provides a set of modelling solutions, targeted at different stages of the customer lifecycle, to help clients build and maintain a loyal and profitable customer base. Our models focus on the differential impact of marketing strategies at each stage, guiding pricing and marketing strategy to maximise long-term business value and profits.