Customer Lifetime Network Value

Today, people are increasingly connected and extensively interact with each other using technology-enabled media. Hence, customers are more frequently exposed to social influence of other customers when making purchase decisions. However, established approaches for customer valuation most widely neglect network effects based on social influence leading to a misallocation of resources. Therefore, following a design-oriented approach, this paper develops a model for customer valuation referred to as the customer lifetime network value (CLNV) incorporating an integrated network perspective. By considering the net network contribution of customers, the CLNV reallocates values between customers based on social influence without changing the overall network value, that is, a firm’s customer equity. Using a real-world dataset of a European online social network, we demonstrate and evaluate the applicability of the CLNV. We show that the CLNV enables a sound determination of both individual customers’ value and firm’s customer equity and supports thorough customer segmentation.