Assessing Customer Lifetime Value How important to profitability are customer referrals? What customers feel about your company (and you) and what they are prepared to tell others about you can be just as important as what your customers do themselves. The authors of the following article hypothesize that overall customer value, what they call customer lifetime value, as consisting of two components: the amount a customer brings in from purchases and the value of referrals. See V Kumar, J. A. Petersen, and R. P. Leone, “How Valuable Is Word of Mouth?” Harvard Business Review, October 2007, pp. 139-146, prior to answering the following questions.
Required
1. What is the primary managerial question or issue that the authors of this article are addressing?
2. Define the terms customer lifetime value (CLV), and customer referral value (CRV). Which of these values do the authors believe is more important for financial success? Why”
3. Which of the two components of value, CLV or CRV, is the more difficult to estimate? Why?
4. Explain the customer value matrix developed by the authors and presented on page 144 of their article. Of what strategic importance is this matrix?
5. In what way can the management accountant aid in the estimation of CLV and CRV (and, by extension, the creation of the customer value matrix)?
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