From good, old Wikipedia:
The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.
The formula for calculating CLV is:
... where GC is the yearly gross contribution per customer, M are the associated costs in retaining customers, n is the number of years, r is the yearly retention rate, and d is the yearly discount rate.
1. In this social age, where connections between customers are far stronger because of social-media enablers/technology, is this formula still valid?
Certainly, the "gross contribution" of a customer should take into account not just her own purchases - but also the impact that her purchases have on her experience and her propensity to recommend the same brand (or not) to others.
Additionally, the M - the cost associated of retaining a customer - should take into account the cost of encouraging her to talk about your brand and recommend it to others. From this vantage point then, M is more than just the amount that one spends on her directly (i.e., 1to1 channels), but also things like advertising (spillover/tangential or directed to her) and effects of other people on her purchase decisions. Amongst other things.
How do we account for that in GC and in M?
2. Why is it that we don't have a similar measure for media investments?
In media planning, we talk of GRPs, shares of voice, reach, frequency, impressions... and the cost of each (e.g., Cost per GRP, Cost per Reach Point, Cost per Impression). Some more sophisticated companies will measure returns on investments per medium or per level of investment in a certain medium.
But these metrics - cost-efficiencies and ROI - are all essentially a measurement in a point in time - NOW. And much as we should be planning for the issues NOW - the impact of what we do NOW will last way into the FUTURE.
So should we not also be talking about the NPV and FV of media investments whilst we are allocating moneys across different media, different levels, different markets?
One last question...
Why are media companies not talking about these things when they are supposed to be the investment experts?
(*** Written whilst multitasking and in a hurry.)