WOM Meets CLV
Valuing Customers
My colleague (Henry Kho) passed along this article on 'the value of a customer' the other day. The article hits two interesting points regarding the life-time value of a customer and the value of word of mouth. The first point I found interesting was the risk adjustments companies are 'starting' to apply to their customer base. While the article doesn't dive deep into this area it reminds me of the work my company (COMPENDIT, Inc.) did years ago for Volkswagen Bank related to the securitization of leases and loans. The article goes on to predict that this type of customer-base valuation will eventually be reported to the financial markets. Below is an excerpt from the article regarding the value of word of mouth behavior.
Some companies are already starting to incorporate the value of customer WOM in their CLV models. For example, Kumar, et. al., in a recent edition of the Harvard Business Review looked at the value of word-of-mouth recommendations for telecommunications companies and financial services customers. Amazingly, they found that a customer's WOM was worth up to four times more than his or her basic CLV.
Makes me wonder how much negative word of mouth is 'worth'.
