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.

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Customer Lifetime Social Value (CLSV)

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