Customer lifetime value determination and strategic implications for a cruise-ship company

Customer lifetime value (CLV) has been a mainstay concept in direct response/database marketing for many years. It has more recently become a major focus in ‘mainstream’ marketing. In spite, however, of all the mathematical models that have been developed to indicate formulas for calculating CLV, there is little, if any, detailed discussion in the literature of the actual applied calculations of CLV. This paper reports on a real-world application of the use of CLV calculations to aid marketing strategy for a cruise-ship company. It covers the real-world issue of database cleaning and merging of the data into a ‘usable’ format, and developing customer migration models utilising these real data, as opposed to using mathematical models that ‘approximate’ repeat/retention patterns. Customer migration analyses are performed and CLV determined for each of three years (eg the ‘cohort of 1993,’ those taking their first voyage with the cruise-ship company in 1993), for several different destinations and for different age segments. The implications and aftermaths of the analyses are discussed.