Customer Profitability Analysis and Customer Life Time Value Models: Portfolio Analysis

The financial performance of a company is evaluated by two models in the marketing and sale phase of business cycle: tactically oriented customer profitability analysis model (CPA) and strategically oriented customer lifetime value model (CLTV). The article builds on the author's paper Analysis of customer lifetime value model: Literature review by analyzing real data provided by a company which belongs to market leaders in its segment: customers' profitability, creditworthiness and payment performance of customers were analyzed between 2010 and 2014. Results of the portfolio analyzes will be used in the future research which should build modified marketing models focused on the customer relationship and expand them by the risk factor of a customer's payment default and potential loss for a company driven by a customer's bankruptcy. Such a model will be tested on the provided data set. We proved that the risk profile of customers was above the average (most of customers were classified as "high risk" customers). Furthermore, we confirmed that "one-off" customers were more reliable payers and were also more profitable for the company. Last but not least, we analyzed the "Kanthal effect" by Kaplan on the data set. We concluded that the profitability of customers varied significantly, but the most profitable group of customers (20 %) generated 104 % of the profits only. (C) 2015 Published by Elsevier B.V.