Customer Lifetime Social Value (CLSV)

Elie  Ofek; Barak  Libai; Eitan  Muller

Background Note | HBS Case Collection | January 2018

Customer Lifetime Social Value (CLSV)

by Elie Ofek, Barak Libai and Eitan Muller

Abstract

One of the hallmarks of the digital revolution is the rise of the socially connected consumer. Concomitantly, the ability of companies to affect and measure the social interactions among customers has grown tremendously. Consequently, in assessing the full value of each customer to the firm it is no longer sufficient to only consider a customer’s worth in terms of the discounted cash flows he or she provides through direct payments, it is also critical to incorporate the indirect value generated through the customer’s social influence. In this note we develop a framework for measuring and quantifying the social value that a customer generates. We derive a simple expression for Customer Social Value (CSV) and show how to combine it with the commonly used expression for Customer Lifetime Value (CLV). The combined entity is termed Customer Lifetime Social Value (CLSV). The note uses concrete examples to illustrate the main ideas and explores a host of issues related to how customers create value for the firm through their social interactions, such as the duration of social influence, reduction in acquisition costs, segmentation implications, relevance for influencer marketing programs, and connection to firm-level valuation.

Keywords: customer lifetime value; Customer Management; social contagion; word of mouth; Customer Engagement; Customer Value and Value Chain; Measurement and Metrics; Customer Relationship Management;

Language: English

Format: Print

24 pages

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Citation:

Ofek, Elie, Barak Libai, and Eitan Muller. "Customer Lifetime Social Value (CLSV)." Harvard Business School Background Note 518-077, January 2018.

In 2019, Chinese smartphone maker and telecommunications empire Huawei was preparing to launch its new flagship smartphone series, the Mate 30. After years of explosive growth, the previous 18 months had been a challenge for the company. In early 2018, Huawei’s planned smartphone launch in the U.S. had failed due to pressure from regulators who cited concerns about the company facilitating Chinese spying. Over the following months, a trade war between the U.S. and China had broken out, with Huawei at its epicenter. By mid-2019, after months of U.S. pressure and restrictions, Huawei found its supply chain for computer parts and software under siege and several governments around the world threatened to ban its 5G network equipment from their countries. In this unpredictable climate, Huawei founder Ren Zhengfei and his management team had to figure out not only how to successfully launch Mate 30 phones in the upcoming fall, but how to ensure the company’s long term viability.

Case | HBS Case Collection | August 2019

Lemonade: Disrupting Insurance with Instant Everything, Killer Prices, and a Big Heart

Elie Ofek and Danielle Golan

Launching its first products in the fall of 2016 in New York, insurtech startup Lemonade was on a mission to disrupt the insurance market by using AI and behavioral economics principles. The company offered renters, homeowners, and condo insurance and mainly targeted millennial, tech-savvy individuals with relatively few assets—customers who were less attractive to traditional insurers who had costly, labor-intensive operations. By offering a delightful, bot-driven consumer experience, embracing a model that removed any incentive to deny claims and that let customers pick causes to donate leftover money, building a loveable brand, and employing creative digital advertising—the company was able to grow at an impressive pace. By the end of 2018, Lemonade was active in 24 U.S. states, had insured 425,000 customers, and was expecting sales (gross premiums) of over $57 million.
In an effort to sustain the spectacular growth momentum, the co-founders sought to pursue ambitious plans in 2019, including the launch of new insurance product lines as well as international expansion. But limited resources and scarce management bandwidth suggested that taking on both moves simultaneously could be highly risky. In deciding which path to take, the leadership team had to consider whether it was more important at this stage to scale globally with the current product lineup or to cover a breadth of insurance categories and stay in the U.S. for now. Assessing the relevance of the business model and the role of AI for each of these moves, understanding the nature of consumers in different markets, and foreseeing competitive pressures from both incumbents and startups were key in making the right call.

Keywords: Business Startups; Insurance; Technological Innovation; Business Model; Disruption; Brands and Branding; Growth and Development Strategy; Global Strategy; Decision Making; Insurance Industry; Technology Industry;

Citation:

Ofek, Elie, and Danielle Golan. "Lemonade: Disrupting Insurance with Instant Everything, Killer Prices, and a Big Heart." Harvard Business School Case 520-020, August 2019. View Details

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