Teaching CLV Badly

Ex-Ivey PHD student and now University of Calgary professor, Charan Bagga, and I have just published an article on the teaching of CLV (Customer Lifetime Value). We surveyed the state of case-based teaching materials related to CLV and found them a pretty shoddy bunch.

One problem is that many of the cases calculated CLV in a way which had no obvious managerial application. If you want to decide how much to spend on acquiring customers, you really must discount any cash you’ll receive in the future to properly compare to any cash that needs to be invested now. Similarly you can’t use CLV to decide how much to spend on acquiring a customer if you subtract the acquisition cost before reporting CLV.

We examined 33 cases and related materials and “show considerable confusion in teaching materials; they contain incorrect formula, erroneous claims, and contradict other materials from the same school. ” (Bendle and Bagga, 2016, page 1).

Perhaps most importantly we have some pretty clear recommendations. We “recommend educators always (a) use contribution margin, (b) discount cash flows, and (c) never subtract acquisition costs before reporting CLV.” (Bendle and Bagga, 2016, page 1).

While the teaching of CLV is currently pretty awful the good news is that it should be relatively easy to improve by following some pretty basic advice.

Read: Neil Bendle and Charan Bagga, (2016),  The Confusion About CLV In Case-Based Teaching Materials, Marketing Education Review, This link might work if you want to see the full paper: The Confusion About CLV in Case-Based Teaching Materials