What are the disadvantages of the traditional Customer Lifetime Value Model? Especially concerning telecom business

• How should a modern Customer Lifetime Value approach look like?

  Asked by Rasim Hasanovic

  NYCO's answer:

  “The main disadvantages were related with the quality of the parameters used as input: proper churn/retention adjustment, picking the right discount rate, etc; and the proper consideration of externalities like: risk factors, walking dead, technology changes, product life cycle, etc. Unfortunately, every model remains only a valuable approach and one element of judgment and companies should not take its results as granted. The experience, intuition and wisdom of senior executives is still the key element to weigh (ponderate) results and make decisions -thanks to that, because it means guys like me have a chance to keep working, LOL- Also, measuring CLV requires deep commitment from many areas within a company (because you need input from several different departments) and the larger the company and the more complex its market, the more difficult to keep track of CLV. The main elements a good CLV model should address are: a) Transaction metrics: average value, periodicity, margin, discount rates, etc.; b) Retention: retention rate, average retention cost per customer/transaction, etc., c) Acquisition costs: cost of reaching, response rate, cost of attracting, discounts, etc.d) Externalities: walk dead rate, product life cycle, seasonal adjustments, obsolescence, etc. Then, the executive will apply his/her own wisdom 80/20, I believe right results should show a long tail. Problem: many companies will find it very expensive to apply. Solution: again, common wisdom and some simple key metrics may help as a compass to manage CLV without measuring CLV. HBS has a simple but nice calculator: http://hbswk.hbs.edu/archive/1436.html Below are some links to papers that may help your investigation. Two of them addressing the specifics of your industry: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=985639 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=605501”

Anyone familiar with the business environment in Latin America? Have heard conflicting perspectives -

• Asked by Richard Candia

  NYCO Answer:

  “Richard, you will always hear conflicting perspectives if you want to treat LATAM as a whole. The region is diverse in grades of development, political and economic systems, stability, etc. If you want to analyze business environment, you must do it country by country as they differ so much. By doing this segmentation the opinions would be much more homogeneous. I am very familiar with the region. What countries are you specifically concerned about? From my point of view, in the past 2 years, Venezuela and Bolivia are the countries with the deepest changes in business environment for political reasons and in a negative way, while Argentina and Peru had the deepest change in a positive way due to economic development.”