Open AccessMEASURING CUSTOMER LIFETIME VALUE: APPLICATION OF ANALYTIC HIERARCHY PROCESS IN DETERMINING RELATIVE WEIGHTS OF ‘LRFM’
Author(s) -
Saurabh Pradhan,
Gokulananda Patel,
P. Nisha Priya
Publication year - 2021
Publication title -
international journal of the analytic hierarchy process
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.213
H-Index - 3
ISSN - 1936-6744
DOI - 10.13033/ijahp.v13i3.892
Subject(s) - customer lifetime value , analytic hierarchy process , business , value (mathematics) , customer value , clothing , customer equity , loyalty , customer satisfaction , marketing , customer base , process (computing) , computer science , customer profitability , hierarchy , loyalty business model , operations research , mathematics , economics , market economy , archaeology , machine learning , service quality , history , service (business) , operating system
The limited availability of resources drives retailers to tailor their resources to identified profitable customers. In the present scenario, when the ROI of marketing is being questioned, the satisfaction of the profitable customers is of utmost importance as it drives their loyalty towards the retailer and the retailer’s brand. This research has considered Length of association with customers (L), apart from variables like Recency (R), Frequency (F) and Monetary-value of the purchase (M) in measuring customers’ relative-worth based on the calculation of Customer Lifetime-value (CLV). The contribution of this article lies in calculating weights of these variables – L, R, F, and M and demonstrating the calculation of CLV using weighted LRFM based on data collected from a leading apparel retailer in India. The obtained results for the customer base using the proposed approach is more reliable when compared with traditional non-weighted approaches of RFM based CLV. This methodology will provide a new and better option to retailers for measuring CLV of their customers, thus aiding their decision making about customer-friendly profitable marketing strategies and attaining optimum returns on their investments.