An Optimal Model For Calculating Customer LifeTime Value Considering Network Effects

Customer lifetime value has been a mainstay concept in direct response marketing for many years, and it has been increasingly considered in the field of general marketing. Several models have been proposed for customer lifetime value calculation in the literature. However, network effects between customers are not considered in conventional models. In fact, with social interaction, each customer can affect the value of other customers. In this paper, we propose an optimal control model for customer lifetime value that considers social network effects. The Hamilton-Jacobi-Bellman Equation was used to solve this optimal control problem. When solving the model, the demand and value of each customer can be calculated.

Keywords:

Optimal control , Customer lifetime value , loyalty program , network effects