Customer Lifetime Value (CLV) is a metric of a customer's value to the organization over the entire history of the relationship. Short-term sales are a factor, but so are overall customer satisfaction, the churn rate in the segment, and the costs to acquire a new customer and retain an existing customer.

The model uses the following input:

Segment Description

• Number of Customers per segment. As of today, how many customers does the company have in each segment?
• Gross Margins are the average margins that can be expected from a customer over each period (e.g., a year, a quarter), based on which segment this customer belongs to at the beginning of this period.
• Marketing Costs quantifies how much money the company spends per customer and per period, depending on which segment this customer belongs. Typically, active customers are followed more closely, receive more attention (e.g., direct marketing solicitations or sales representatives visits), and cost more to the firm.

Transition Matrix

• The Transition Matrix summarizes the likelihood a customer will switch segments at each period. This matrix should be read horizontally, and each line sums up to 100% (since all customers need to go somewhere). In the above example, an "active customer" has a 75% likelihood of still being in the same segment next period, and 25% chance of switching to the "warm customer" segment.

The Customer Choice (Logit) model is an individual-level response model that helps to analyze and explain the choices individual customers make in the market. The Customer Choice model helps firms to understand the extent to which such factors as price of a brand or its ease of installation influence a customer's choice of a brand. A brand's purchase probability at the individual level is equivalent to the brand's market share at the market level.

Firms can use Customer Choice analysis to develop marketing programs that are tailored to specific market segments, or even tailored to individual customers.

This model uses the following input:

• Single Alternative/Boolean
  This method analyzes only one option instead of choosing one among several alternatives. For this analysis, only one brand's data is required.
• Multiple Alternatives
  This method considers customer response across a subset of related competitors. For this analysis, the following data is required for all competing brands involved in the study.

For each customer, the data that goes into this model is a set of ratings on various attributes of each alternative (either single alternative "yes/no" response, or multiple alternatives "chose one of N" response) involved in the study, and the alternative that the customer chose in each period. For the "Single Alternative/Boolean" option, this would be a 1 or 0, depending on whether or not the customer chose this alternative. For the "Multiple Alternatives" option, one alternative would be a 1 to indicate the alternative chosen during this period, while the others remain 0 to indicate that this particular customer did not choose the other alternatives.