1. Life Time Value Analysis Definition: LTV is the net present value (NPV) of the profit that you will realize on the average new customer during a given number of years. LTV can be used in the development of marketing strategies. Many different factors cause LTV to change: some controllable, some not.

2. Why is LTV Not Used? Few marketers understand it. Time value of money not universally understood. Marketers do not have access to a database of relevant information. Marketers under pressure to produce. LTV requires testing and tracking behavior over TIME.

3. Analyzing a LTV Table (refer to table 3-1 – handout) Start out with a 1000 customers who were issued a store credit card. Retention rates can change but often remain stable. Sales, costs, profits and NPV Discount Rate = (1+I) n

4. Lifetime Value Calculations

5. Strategy Development Using LTV LTV provides testing ground for alternative promotional strategies. Promote better customer relationships CRM strategies can affect the following: Retention rate Referrals Increased Sales Reduce Direct Costs, e.g. alternative channels Reduce Marketing Costs, efficient targetign

6. Strategy Development Using LTV (continued) (refer to handout, Table 3-2) Activities: build a database, targeted communication, collect survey data, Evaluate ROI of activities. Note addition of referral rate, increase in retention rate, increase in average sales, etc.

7. Strategy Development Using LTV (continued) Factors affecting retention rates: Type of promotions used to attract custs. Price charged for the product. Efforts to get the customers to buy again. Relationship building efforts directed towards current customers.

8. Strategy Development Using LTV (continued) Store has increased LTV for each customer by $51.63 after five years. Assuming 200,000 customers: translates into an increase in profits by approx. 10 million (NPV over 5 years). LTV grows with increases in retention rate. Can be used to assess acquisition costs