Last month's column discussed the advantages of customer value models as tools for making business decisions. The basic point was that such models calculate the full impact of a decision by tracing its impact on the customer's subsequent behavior. Thus, a company can avoid decisions that look good in the short run but ultimately decrease the value of the customer relationship.
In other words, a customer value model is a tool for estimating customer lifetime value, which is defined as the net present value of future cash flows associated with a customer. Some readers may be disappointed by this clarification. After all, the concept of customer lifetime value has been around for a long time and received quite a bit of recent attention. If "customer value model" were really the same thing, there would not be much new to say. Although customer value models and customer lifetime value are related, they are not identical. Important aspects of customer value models are not covered in typical discussions of customer lifetime value.
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