Towards a better understanding of customer lifetime value and over indebtedness

Abstract

Companies around the world have collected enormous amounts of data at the customer level, and are using different methodologies to understand their customers’ behaviour. However these different methodologies have not been effective in leveraging customer information. In this study, by computing Customer Lifetime Value (CLV) scores for individual customers of a banking organisation, two segments namely high CLV and low CLV are mined. The level of indebtedness among customers in this study is identified based on the two segments mentioned above. Also in this study, a critical analysis of the literature on the association of CLV and Over-indebtedness is provided. The results indicate that the low CLV customers are less likely to end up over-indebted. This finding negates the common viewpoint that low CLV and over-indebtedness variables are associated. A quantitative research design was chosen above a qualitative research design for this study. CLV scores for individual customers are calculated using Hwang (2004) model and a Chi-squared test is used for the hypothesis testing of the research propositions. Based on the findings and conclusions drawn from this study, several recommendations and further future research are made.