Over the past year, my column has argued repeatedly that lifetime value is the one true measure of business results. But lifetime value deals with customers as a group. The central question it answers is, how much value will this set of customers produce? This tells how much the company can pay to acquire those customers or keep them from leaving. Components of lifetime value, such as orders per customer or trends in the retention rates, also provide valuable insights into the health of the business as a whole.

However, sometimes you need to look at customers as individuals. In fact, most day-to-day customer management decisions are made at this level. Which offer should I send? Where should I set the credit limit? How should I respond to this complaint? The criteria for resolving those questions still impact lifetime value, but lifetime value analysis itself cannot predict how particular customers will react. This requires a more precise tool that looks at the behavior of individual customers.

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