THE CONFUSION ABOUT CLV IN CASE-BASED TEACHING MATERIALS

Neil T. Bendlea and Charan K. Baggab

a
Ivey Business School, Western University, London, ON, Canada; bHaskayne School of Business, University of
Calgary, Calgary, AB, Canada

The authors review 33 cases and related materials to understand how customer lifetime value (CLV)
is taught. The authors examine (a) whether CLV is calculated using something other than contribu-
tion (e.g., revenue), (b) whether discounting is used, and (c) whether acquisition costs are subtracted
before reporting CLV. The authors show considerable confusion in teaching materials; they contain
incorrect formula, erroneous claims, and contradict other materials from the same school. The
solutions that the authors offer should improve the teaching of CLV. The authors recommend
educators always (a) use contribution margin, (b) discount cash flows, and (c) never subtract
acquisition costs before reporting CLV.

Customer lifetime value (CLV) is a critical marketing A BRIEF REVIEW OF CLV

concept (Bendle, Farris, Pfeifer, & Reibstein, 2010,
2015; Berger & Nasr, 1998; Gupta & Lehmann, 2006;
Gupta, Lehmann, & Stuart, 2004; Joo, Kim, & Yang,
2011; Venkatesan & Kumar, 2004). Yet, many man-
agers do not seem to have a clear understanding of
CLV (Bendle & Bagga, 2016). Quantifying CLV can be
challenging so some confusion is probably inevitable.
This research highlights a different, and we believe
relatively simple, problem to solve. The problem we
see is twofold. First, there is great inconsistency
between the materials being taught. Second, there are
basic conceptual errors in how CLV is taught. We illus-
trate the (a) inconsistency and (b) conceptual errors by
reviewing the available case-based teaching materials.
We then propose specific actionable recommendations
on how CLV should be taught.
Our research has uncovered numerous statements
about CLV that either do not align with best practice,
or do not hold for the CLV formulation described in
the teaching materials. The simplifications used to
help explain CLV to students often leave the result-
ing “CLV approximation” with no obvious manage-
rial application. Anyone who conscientiously
attempts to learn about CLV from the available
teaching materials is likely to become confused.
Address correspondence to Neil T. Bendle, Ivey Business
School, Western University, 1255 Western Road, London,
ON N6G 0N1, Canada. Email: nbendle@ivey.ca
CLV represents an attempt to objectively value custo-
mers. It is managerially important because given custo-
mers vary in their financial value to the firm, CLV can
help inform decisions regarding which customers to
target and retain, and how much to spend in doing so.
In this research, we do not dig into the assumptions
behind CLV. (For challenges with CLV, see Fader &
Hardie, 2012; Pfeifer, Haskins, & Conroy, 2005; Pfeifer
& Ovchinnikov, 2011). Some scholars may question
these assumptions but we start from the premise that
CLV could be useful if properly understood and
applied. Rather than get immediately into specifics of
what we mean by CLV we give a general definition
from senior academics in Harvard Business Review.
“The customer lifetime value metric evaluates the
future profits generated from a customer, properly dis-
counted to reflect the time value of money” (Rust,
Moorman, & Bhalla, 2010). This captures three ideas
that we will show are confused in teaching materials.
We later provide specific recommendations in the
Conclusions section on how to tackle these issues.
First, the value from a customer is the profit that the
customer generates for the firm. This is relatively uncon-
troversial; it is the value that the firm is able to capture
that matters, and not the revenue generated from the
customer. Despite this concept being widely accepted,
we will show that teaching materials commonly erro-
neously use revenue as a measure of value.
The second challenge is that marketers often do not
discount future cash flows. Given that money today is

Marketing Education Review, vol. 27, no. 1 (2017), pp. 27–38.

Copyright Ó 2017 Society for Marketing Advances
ISSN: 1052–8008 (print) / ISSN 2153–9987 (online)
DOI: 10.1080/10528008.2016.1255561
28 Marketing Education Review
more valuable than money tomorrow, ignoring discount-
ing in CLV calculations generally overstates the value of
the customer relationship. This is especially true for cus-
tomer relationships of long duration. Compounding this
issue further is the fact that CLV is most useful when
customer relationships are of long duration.
The final point to note is that CLV is said to relate to
“future profits generated from a customer”. However, not
all CLV approaches adhere to this conceptualization. For
example, one CLV approach assesses the value of custo-
mers who have ceased to be customers—in other words,
the lifetime value is backward looking and historic. Other
approaches look at the value of prospective customers.
Ofek (2014) does a helpful job of differentiating
between two ways to calculate CLV. The infinite horizon
approach uses finance-based techniques and assumptions
about future activity to project the future value of a custo-
mer. It is a simple and intuitive way to provide projections
of the future, although the necessary assumptions (e.g., a
constant margin) may be overly restrictive in many indus-
tries. The second approach, the N-Period model, can be
used when transaction data, often projected, is available
and is simply calculated by summing suitable discounted
entries over the N periods, often on a spreadsheet.
BASIC CLV FORMULAS
We start with the infinite horizon CLV formula. (Note
that in order to simplify the formulas we ignore reten-
tion spending as retention spending is not central to
our discussion. We recommend raising the issue of
retention spending after the students have mastered
the basic formula.) The infinite horizon CLV formula
can be written as follows:
Margin  Retention Rate
CLV1 ¼
1 þ Discount Rate  Retention Rate
ðwithout initital marginÞ
Margin  Retention Rate
= Margin þ
1 þ Discount Rate  Retention Rate
ðincluding initial marginÞ
This formula is especially useful as it projects lifetime
values from only a few variables and does not truncate
the value after an arbitrary period (e.g., 5 years).
Unfortunately, this formula is relatively unintuitive for
many students. The idea of a customer with infinite life
may puzzle some and requires a knowledge of calculus to
understand it.
The second formula, the N-period model (CLVN), is
simply the suitably discounted summation of the contri-
bution margin associated with the customer over the
customer’s lifetime. The N-period model is a discrete per-
iod model, and calculations are often spreadsheet based.
When using historic data this model can determine what
happened in the past. With suitable assumptions about
the future, the N-period model can also estimate future
profitability. Mathematically, the N-period model is less
elegant than the infinite horizon model, and also does
not capture the full lifetime value when N, the number of
periods assessed, is a relatively small number, such as
3 years. Given that the N-Period model (especially for
small periods) reflects only a partial lifetime Fader and
Hardie (2014) recommend that the N-period customer
value should not be called customer lifetime value
(CLV). Probably, the simpler solution they offer is to use
a large number for N. With large Ns, e.g., 50 years, this
formula approximates the value of the lifetime of a cus-
tomer relationship. The advantage of the N-Period model
is that it is more flexible and intuitive than the infinite-
period model; for example, one can easily vary margins
and retention rates between periods.
X
N
Margin  Retention Ratet1
CLVN ¼
t¼1 ð1 þ Discount RateÞ t1
Throughout our research we consider the aim of CLV
calculations to be to improve decision making and we
echo the Rust et al. (2010) approach viewing the great-
est utility of CLV as an input for future-focused man-
agerial decisions. Our conclusions start from the idea
that CLV should be useful to managers.
It is important to understand the models we detail are
not perfect and certainly cannot be applied in all situa-
tions. Fader and Hardie (2014) note that retention rates are
rarely constant across time as assumed in the infinite
horizon model; typically customers are more likely to
defect early in a relationship. Similarly, assumptions that
are essentially impossible, such as estimating which custo-
mers remain active, are needed in noncontractual situa-
tions. This means applying the infinite horizon formula to
noncontractual situations is likely to fail. These scholars
also argue that if the initial margin isn’t included; this isn’t
the full lifetime value—a semantic point of importance to
our understanding of the output. Fader and Hardie (2014)

make many excellent points, but we have observed that
the problems in how marketing educators teach CLV go
deeper than they suggest. Marketing educators must first
work to prevent (low hanging) mistakes in case-based
materials that are more rudimentary than the concerns
that Fader and Hardie (2014) raise.
WHAT WE DID
CLV is an important teaching tool. For example,
(Mummalaneni, 2014, page 44) describes: “A Customer
Lifetime Value (CLV) assignment that requires them [stu-
dents] to calculate CLV for different segments and dis-
cusses the managerial implications . . .students are
expected to synthesize and apply theoretical knowledge
to the solution of real-world problems.” Given CLV’s usage
in marketing curriculum, our research sought to uncover
how CLV is explained in teaching, specifically case-based
materials.
Our basic approach was to collate the published
case-based teaching materials (cases, teaching notes,
and supplementary materials) that are available for
the teaching of CLV. We wanted to create a set of
cases from widely used case material providers to
ensure that we had the best and most popular materials
available on the market. To do this, we reviewed the
websites of four major suppliers of cases. These were
the Harvard Business School, Ivey Business School, The
Case Centre, and the Darden School of Business. These
providers sell products from a range of different schools
so we were able to access materials from other top-
quality schools, such as Kellogg and IMD, through
these websites. On the websites of these four providers
we searched for “customer lifetime value” and “CLV.”
We removed duplicates where cases are sold on more
than one website; for example, Ivey cases also appear
on the Harvard website. To focus only on marketing
related materials; if the website permitted filtering on
only marketing-related materials, we did so. We also
dropped a number of cases which only mentioned but
did not calculate CLV, (e.g., the Starwood Hotels:
Innovation through Marketing case from IMD). This
gave us our basic set of 33 case-based materials. In
addition, we supplemented the cases we found from
the website search with other cases that we (or other
marketing colleagues in our network) identified as
being CLV related cases.
Spring 2017 29
For all the materials, we used the latest dated version
available and excluded material for which (a) there was no
English translation available, (b) there were no written
teaching materials (a video case, syllabus, etc.), or (c) it
was unclear how the writer envisaged CLV being calcu-
lated. (When given, any formula used is typically con-
tained in an attached teaching note). For background
information, we also collated a set of management articles,
e.g., HBR reprints. Our list of materials is in Table 1.
In looking at teaching materials for this research, we
examined only published work.
PROBLEMS IN THE TEACHING MATERIALS
To establish the problems in CLV teaching materials we
first note best practices. We then compare the claims made
in the case-based teaching materials with best practices.
We highlight the logical problems in the materials when
claims are made in a material that do not relate to the
formula given in the corresponding case-based material.
In highlighting the logical problems, we will use basic
theoretical and uncontroversial ideas such as the idea
that sunk costs should be ignored when making decisions.
For example, we will show how case-based materials
include sunk costs in CLV and then say CLV can be used
to inform decisions about current customers. Such mis-
takes in teaching materials may lead students to inappro-
priately use sunk costs in their acquisition decisions.
Hence, our advice should help improve quantitative
marketing.
Must CLV Use Contribution?
A surprisingly common problem in CLV teaching mate-
rials involves the use of revenue instead of contribution.
It is well known that revenue is not the basis of CLV,
(e.g., Bendle et al., 2015; Gupta & Lehmann, 2006). Best
practice from academic research is very clear that CLV is
based upon contribution and not revenue.
Furthermore, managers should never use revenue-based
projections alone to determine how much to spend on
acquiring and retaining customers. Given the variable
costs of serving the customers matter, it is unclear what
exactly lifetime values based upon revenue are useful for.
These values should certainly never be used to assess how
much to spend acquiring a customer. A firm doing so will
go bankrupt given it ignores the variable costs of serving
the customers.
 Table 1
Relevant Materials Assessed
Short Name What Authors Version Source

1 Ad Comm Group Case Fujikawa, Yang, Main, Claiborne June 13 2008 Hitotsubashi
2 Bankinter Case Martinez-Jerez, Miller Jan 3 2011 Harvard
3 Brita Case Deighton Jan 15 2002 Harvard
30 Marketing Education Review

4 Citibank India Case Mukherjee, Kawde May 22 2014 Ivey

5 CLV at Comtel Case Van Gool, Roodhooft, Kemseke Mar 05 2015 Vlerick
6 CLV Note Note Pfeifer, Farris, Bendle Jun 19 2014 Darden
7 CLV versus CLROI Note Ofek Oct 15 2014 Harvard
8 Consumer Choice Case Jeeson, Jathar, Kumar Jun 1 2013 IIM Bangalore
9 Controy’s Acura Case Murray, Moffatt Feb 4 2008 Ivey
10 Crutchfield Corporation Case Pfeifer Apr 12 2013 Darden
11 Customer Management Note Gupta Sep 18 2014 Harvard
12 Customer Profitability Note Farris, Pfeifer, Bendle Jun 24 2005 Darden
13 Customer Profitability & Lifetime Value Note Ofek Sep 4 2014 Harvard
14 Developing & Managing Customer Relationships Note Hollensen 2006 McGraw Hill
15 Disruption in the air Case Reddy, Low,Wong Apr 17 2015 Singapore Management
16 Dunia Finance Case Bodily, Venkatesan Mar 20 2014 Darden
17 Filene’s Basement Case Avery, Fournier Jan 29 2014 Harvard
18 Hubspot Case Steenburgh, Avery, Dahod Jan 24 2011 Harvard
19 Kansai Case Martinez-Jerez, Dillon Mar 27 2007 Harvard
20 Marketing Analysis Toolkit Toolkit Steenburgh, Avery Aug 12 2011 Harvard
21 Marketing Metrics Note Stanko, Fleming Aug 1 2014 Ivey
22 Marketing Tutorial Online Avery, Steenburgh Sep 23 2014 Harvard
23 Maru Batting Center Case Hennessy, Meagher Mar 13 2015 Kellogg
24 Motorcowboy Case Farris, Maddux, Harr, Gray, Kanaparthi, Shrivastava, Weiss, Pfeifer Jun 20 2014 Darden
25 Netflix DVD Wars Case Venkatesan, Sarolli Sept 19 2011 Darden
26 Netflix: Customer Strikes Back Case Venkatesan, Shively Jun 20 2014 Darden
27 Paid Search Advertising Note Venkatesan, Gibbs May 27 2014 Darden
28 Retail Relay Case Wilcox, Brandow June 3 2014 Darden
29 Rosewood Hotels Case Dev, Stroock Jun 15 2007 Harvard
30 Starbucks Case Moon, Quelch July 10 2006 Harvard
31 Tokaibane in 2007 Case Fujikawa, Koita Jun 13 2008 Hitotsubashi
32 Using Customer Relationship Management Note Hennessy, Meagher 10/25/2012 Kellogg
33 Xiamen Honda Case Guo, Wang 12/20/2012 Ivey

Unfortunately, marketing teaching materials suggest
using revenue as the value attributable to a customer in
CLV calculations. Consider, for example the Starbucks
case, which is designated as a “most popular” case on the
Harvard website. The authors consider the lifetime value of
a customer as the revenue generated from the customer.
Although they do not use the term CLV, their language is
highly confusing, especially as they suggest that the case
can be used to allow “students to perform lifetime value
calculations” (Moon & Quelch, 2006). The lifetime value
of customers reported is considerably inflated by not con-
sidering the variable costs of serving customers, and so it is
not clear what this value can be used for. Educators should
make it clear to their students that such a figure should
certainly never be used to determine how much to spend
on acquiring a customer or be used to compare the relative
value of customers to the firm.
This use of revenue for the CLV calculation in the
Starbucks case contrasts with other materials produced
by the same provider (Harvard) which are very clear
on the correct approach. “First, CLV is based on prof-
its, not revenue; specifically, it is based on contribu-
tion—which is revenue less direct and attributable
costs” (Gupta, 2014). Any students reading this and
then listening to the solution to the Starbucks case are
likely to be puzzled by this inconsistency.
Harvard produces high-quality teaching materials
and devotes considerable resources to this end. If
Harvard is not getting CLV consistently right then it
is hardly surprising that the confusion is widespread.
The Consumer Choice case from IIM Bangalore (Jeeson,
Jathar, & Kumar, 2013) addresses what they call the
“CLV of revenue”; a unique and confusing version of
CLV. Again, we could not infer what the managerial
implication of this figure is.
Even when marketing educators do consider relevant
costs, other challenges arise. The “CLV at Comtel” case
(Gool, Roodhooft, & Kemseke, 2015) relies on EBITDA
numbers because they do not have access to contribu-
tion margins. This distorts decision making because
EBITDA includes allocations for fixed costs, which will
not change with a given decision. Such costs are theo-
retically irrelevant to a manager’s decision. Here, we
greatly sympathize with the authors; allocating costs
is a tricky problem across marketing and using
EBITDA recognizes that customers cost money to
serve. We suggest that a brief discussion on the differ-
ence between contribution and EBITDA in the teaching
note would help allay any confusion.
Spring 2017 31
Another case, “The Ad Comm Group” from
Hitotsubashi University (Fujikawa, Yang, Main, &
Claiborne, 2008), suggest CLV is selling price multi-
plied by units sold in the lifetime. This not only ignores
the costs of providing the product (Porsche cars) but
does not discount the cash flows received. This failure
to consider the time value of money is the issue to
which we turn next.
Should CLV Be Discounted?
Given that the contribution margin can be estimated
and a simple adjustment made, using revenue instead
of contribution seems unjustifiable. Omitting discount-
ing as the Starbucks case (Moon & Quelch, 2006) and
the Hubspot case (Steenburgh, Avery, & Dahod, 2011)
does, is somewhat different. We sympathize with edu-
cators who try to simplify quantitative expressions.
This admirable aim has led to some educators simply
dropping any mention of discounting. The problem is
that this ignores one of the central ideas of CLV—that
it represents the present value of the customer relation-
ship. Discounting is critical as it puts all cash flow
whenever it occurs on a comparable basis.
Given that not discounting typically overstates the
lifetime value of customers many academics take issue
with ignoring discounting. The authors of the Harvard
online tutorial (Avery & Steenburgh, 2014) note that
this simple, nondiscounted formula is problematic.
Another Harvard case, “Filene’s Basement,” explains
that omitting discounting “ignores a very important
financial fact” (Avery & Fournier, 2014) and Ofek
(2014) explains, “we should discount each future net
cash flow by an appropriate cost of capital”. We agree.
While we acknowledge the best intentions of those
trying to simplify CLV, we believe that when discussing
customer lifetime value, one simply must discount.
Typically, customer relationships span multiple time
horizons (years) and have some cash flows with timings
that are substantially different from other cash flows.
The cash flows must therefore be discounted in order to
make the numbers comparable. The key point is that
the usefulness of CLV relative to a single-period custo-
mer profit figure increases the longer the customer life-
spans are. When CLV is most worth using—that is,
when customer lifespans are long—is precisely when
discounting (to ensure future and current dollars are
comparable) is critical.
32 Marketing Education Review
Figure 1
Bias From Ignoring Discounting
E.g., discount rate =10%, retention rate =
90%, then bias in CLV from ignoring
discounting is 4.5 times the initial margin
Consider the bias in estimates of CLV caused by
ignoring discounting. To illustrate bias, we subtract
the CLV∞ from an estimate of CLV∞ where the discount
rate is 0 (i.e., no discounting). Figure 1 shows the bias
in the estimates of CLV compared with the margin (set
to 1). When the discount rate is 10%, retention rate is
90% and CLV is 5.5, the nondiscounted CLV is 10. The
bias in overestimating CLV is 4.5 times the initial mar-
gin and inflates the estimate of CLV by 82% (4.5/5.5).
This major bias means that any “CLV number ignoring
discounting” should never be used as an input to stra-
tegic deliberations. We conclude that a nondiscounting
approach is not worth teaching because the managerial
use of such a biased figure is unclear.
A less obvious problem is that omitting discount-
ing simplifies life for the teacher by shifting the bur-
den of confusion. We sympathize with a student who
learns the nondiscounting approach from one profes-
sor and loses marks in the next professor’s class
because they paid attention in the first class.
How Should We Treat Acquisition Costs?
Arguably, the greatest confusion arises over whether
to subtract acquisition costs before reporting CLV.
Teaching materials use both approaches. Some do
not subtract acquisition costs before reporting CLV
(Farris, Pfeifer, & Bendle, 2005; Gool et al., 2015;
Pfeifer, Farris, & Bendle, 2014), while others do
(Avery & Fournier, 2014; Hennessy & Meagher,
2012).
Many scholars subtract acquisition costs before
reporting the CLV of future customers but we argue
that subtracting acquisition costs before reporting
any CLV number is confusing. Such an approach
means that marketers must use two contradictory
versions of CLV—the formula they use for assessing
the CLV of future customers cannot be used for deci-
sions regarding current customers. We are not saying
that subtracting acquisition costs is demonstrably
wrong when assessing the value of future customers
but are arguing that the use of two contradictory
formula for the same concept in different situations
leads to widespread confusion. Settling on one for-
mula—the one that does not subtract acquisition
costs before reporting CLV—is advisable given it can
be used in all situations.
To see the impact of the confusion caused by having
two contradictory definitions of CLV consider the
Harvard core reading on customer management authored
by a CLV pioneer, Sunil Gupta. His text suggests that CLV
should be reported without subtracting the acquisition
cost. Unfortunately, the interactive example built from
the Harvard online tutorial subtracts acquisition costs

before reporting CLV. A footnote explains that acquisi-
tion cost is often subtracted before reporting CLV, but
does not explain that subtracting acquisition costs from
CLV before reporting it changes CLV’s meaning. Gupta
asserts that “CLV is the maximum benefit that an orga-
nization derives from a customer over his or her life, it
can be used to establish customer acquisition cost limits”
(Gupta, 2014). This is not true if acquisition costs are
subtracted prior to reporting CLV as the Harvard inter-
active tool does. As Fader & Hardie (2014, page 5) say: “If
we are computing CLV in order to estimate an upper
bound for spending on customer acquisition, the −AC
[i.e. the subtraction of acquisition costs] term should
clearly be excluded.” Marketers simply cannot work out
the maximum they could pay to acquire a customer if the
cost to acquire the customer has already been subtracted
from CLV.
Similarly, when CLV is used for decision making
regarding current customers, it should be forward look-
ing; however, acquisition costs are sunk for current
customers. The assertion that “CLV helps managers
make investment decisions” (Gupta, 2014) is proble-
matic for decisions regarding current customers when
the formula subtracting acquisition costs before report-
ing CLV is used. This formula is distorted by sunk (i.e.,
decision irrelevant) costs.
Another potential confusion arises from a claim in
the Filene’s Basement case that CLV “allows managers
to understand the overall value of their customer base”
(Avery & Fournier, 2014). The authors reference the
CLV formula in “the Marketing Analysis Toolkit”
(Steenburgh & Avery, 2010) but the formula in this,
i.e. after subtracting acquisition costs, does not allow
you to value your current customer base. The Toolkit’s
formula includes irrelevant sunk costs, which distorts
the forward-looking value of the current customer base.
Subtracting acquisition costs before reporting CLV
seems often simply a mistake. For example, Hollensen
(2006) said that CLV has a number of uses: “i) it shows
marketers how much they can spend to acquire a cus-
tomer, ii) it provides a level of profitable spending to
retain a customer, iii) it provides a basis for targeting
new customers who look like the company’s most prof-
itable customers.” However, the CLV formula they
give, which is after subtracting acquisition spending,
does none of the three things especially well. One must
add back the acquisition spend to get an idea of the
maximum level of acquisition spending. Similarly, the
acquisition spending is a sunk cost for retention
Spring 2017 33
decisions and should be added back to any CLV num-
ber used before making retention decisions. Customers
with very different contributions to the firm have the
same “CLVs” after subtracting their different acquisi-
tion costs (Bendle & Bagga, 2016). Hence, a marketer
who wants to identify customers making a similar con-
tribution to the firm going forward should not use the
formula they give which subtracts acquisition costs.
Similarly, the Harvard Online Tutorial suggests when
CLV can be used. Three of the five suggested uses in
this piece do not apply to the formula offered in the
tutorial without modifying the formula to add back
acquisition costs. Specifically, the text suggests that
CLV helps us decide the following:
● “When to fire a customer” (Avery & Steenburgh,
2014) but acquisition costs are irrelevant for cur-
rent customers and should not impact any number
informing such a decision.
● “How much to spend on acquiring customers”
(Avery & Steenburgh, 2014) but one must add
back the acquisition costs to their CLV figure to
determine this.
● “How much to spend on retaining, serving, and
cross selling to existing customers” (Avery &
Steenburgh, 2014). Again, acquisition costs are
sunk for existing customers and should not impact
decisions about these customers.
The sum of the lifetime values of a firm’s customers is
sometimes referred to as customer equity (Fader, 2013).
This mimics the accounting idea of equity—the value of a
firm to its owners. Historic costs are irrelevant to equity
because all that matters is value now. For customer equity
to parallel the accounting idea of equity, it is important
that irrelevant (sunk) figures such as the amount spent
acquiring a current customer do not change the equity
figure.
Note that our recommendation to calculate CLV
before subtracting acquisition costs has great benefit
in reducing confusion but loses us nothing. To consider
the value that a firm will be able to claim from future
customers one can simply use the formula we recom-
mend that reports CLV before subtracting acquisition
costs. You compare this formula to a separate estimate
of acquisition costs.
Comparing CLV to acquisition costs, rather than
subtracting acquisitions costs before reporting CLV
when considering future customers, may seem like a
34 Marketing Education Review

minor difference. That is our point. Reporting CLV Given that it is very simple to compare CLV to
before acquisition costs and comparing this to acquisi- acquisition costs, there seems no benefit to subtract-
tion costs, versus reporting CLV after subtracting acqui- ing acquisition costs before reporting CLV.
sition costs do similar things for future customers. The
reason for our recommendation is that our approach
DO SCHOOLS HAVE PERSPECTIVES THEY ARE
preserves a single meaning for CLV—the formula that ACTIVELY DEFENDING?
we recommend also works for current customers. Our
We have outlined our thoughts but not all scholars
recommended approach achieves all that the other
may agree. It is easy to imagine a situation where one
approach achieves while eliminating the confusion
school makes a deliberate attempt to teach one defini-
that using contradictory formulas for CLV when asses-
tion to their students, while another school attempts to
sing current and future customers engenders. Why
teach an alternative approach. If this is the situation we
have an unnecessary alternative definition that
find ourselves in, it would not be surprising to see a
encourages even marketing professors to make
certain amount of confusion. Here, there would be a
mistakes?
battle of ideas occurring from which we might hope
Defenders of subtracting acquisition costs may
that the superior concept will eventually triumph. As
still suggest that this approach gives a net profit
such, we considered whether there was indeed an
associated with a customer from before they are a
ongoing battle of ideas about CLV with schools taking
customer to the end of the relationship. A historical
sides and advocating for a CLV approach that their
view of customer value may be useful but this can be
school specifically favours. This hypothesis would be
achieved using our recommended approach. One
supported by evidence of alternative definitions being
can find out full cash flows associated with the cus-
used across schools but consistent definitions being
tomer by calculating CLV as we recommend, report-
used within a school. The alternative hypothesis is
ing this as CLV. Then you subtract acquisition costs
general confusion; many schools simply have not
to create the full view from before acquisition to the
adopted any perspective. Evidence of general conclu-
end of the relationship with the customer.
sion will be shown by inconsistencies in definitions
Subtracting acquisition costs before reporting CLV
within materials from the same school.
creates a further problem. Even if an assumption
Accordingly, we examined the 33 materials that are
that the prospective customer will behave like past
listed in Table 1 to see if there was consistency between
customers is correct, acquisition costs are likely to
schools. We did this by manually searching through each
have changed in the “lifetime” since the past custo-
case and recording the CLV formula offered. This formula
mers were acquired. Given acquisition techniques
is either given in the main case text available to students
change over time there seems little reason to think
or in the teaching note supplied to the professors. Table 2
that historic acquisition costs will be the same as the
summarizes the results when we categorized each item
current acquisition costs. We should, therefore, use
from a school’s teaching materials into whether it (a) did
the new, not historic, acquisition costs in our ana-
not use contribution in CLV, (b) did not discount, or (c)
lysis. The logic is similar to that employed in the oil
subtracted acquisition cost before reporting CLV.
and gas industry: wells that were previously unviable
In this analysis, we can only form conclusions about
become viable as the cost of extraction changes.
schools with multiple publications given we need to
Thus, numbers that may have been negative (posi-
compare whether CLV is treated in the same way
tive) in the past may now be seen as positive (nega-
between publications. Inconsistency is shown when-
tive) when changes in acquisition costs are assessed.
ever more than one approach is adopted within mate-
This will be missed by those who have already sub-
rials from the same schools.
tracted historic acquisition costs in their assessments
One point to notice is the relatively low number of
of CLV. If the CLV formula used already has acquisi-
materials for each school. We believe that the discipline
tion costs subtracted, then to be useful for acquisi-
would benefit from a greater number of teaching materials
tion decisions one must add back the historic
related to CLV. However, given most schools have a rela-
acquisition costs and then subtract the current
tively small number of publications, we might expect to
acquisition costs. Such an approach adds a comple-
find consistency occur simply by chance; three coin tosses
tely unnecessary and confusing step.
 Spring 2017 35

Table 2
Summary of Schools’ Approaches
Did Not Use Contribution Did Not Discount Subtracted Acquisition Cost
Total Items Yes/No Yes/No (Yes/No)

Kellogg 2 0/2 0/2 2/0

Darden 9 0/9 0/9 0/9
Hitotsubashi 2 1/1 (inconsistent) 2/0 0/2
Ivey 4 0/4 1/3 (inconsistent) 4/0
Harvard 12 1/11 (inconsistent) 2/10 (inconsistent) 9/3 (inconsistent)
Vlerick 1 0/1 0/1 0/1
SMU 1 0/1 0/1 1/0
IIM Bangalore 1 1/0 0/1 1/0
McGraw Hill 1 0/1 1/0 1/0
Total (as per Table 1) 33 3/30 6/27 18/15

are much more likely to randomly all show heads than
twenty tosses. This makes ours a conservative test. If we see
materials from the same school using inconsistent for-
mula, despite having only a few publications, it is sugges-
tive that the school has no clear perspective informing the
use of CLV formula.
Table 2 shows us that three (Harvard, Ivey, and
Hitotsubashi) of the five schools with multiple items
do not have a consistent approach to the CLV for-
mula—despite the generally low levels of publica-
tions. The two Hitotsubashi cases treat contribution
differently, one using contribution as the basis of
CLV, the other not doing so. Ivey does not discount
in one of its cases. Harvard is perhaps the best exam-
ple given its multiple publications and excellent
reputation for teaching materials. One of Harvard’s
twelve cases uses revenue instead of contribution
and two of the cases do not discount. Nine of the
twelve cases subtract acquisition cost before report-
ing CLV. Overall, we see little evidence that any of
these schools have a policy about how CLV should
be treated in case materials. Given the widespread
inconsistency within schools, we infer that the con-
fusion in the discipline does not stem from prin-
cipled disagreements between schools. Instead, that
the confusion regarding CLV arises from lack of con-
sistency within the discipline, which is reflected in
the inconsistent materials published by the same
school.
CONCLUSIONS AND RECOMMENDATIONS
Customer lifetime value is an important element of
marketing curricula but many of the claims made
about CLV are simply incorrect. We believe it is impor-
tant to clarify terms and that students will benefit
when CLV is taught in a way that is clear, correct,
and likely to be useful in their future careers.
Academics will benefit if their students learn consistent
approaches. Furthermore, using clear terms should
allow academics to have greater impact on business.
To these ends, we detail a number of recommenda-
tions. We hope that schools producing case-based
teaching materials pay heed to these recommenda-
tions. It is important to note that we also hope that
individual educators can adjust the teaching notes pro-
vided to them to ensure that the correct approach to
compute CLV is used.
First, Use CLV Correctly
When writing teaching materials and when teaching
students one should always discount CLV and base
calculations upon contribution and not revenue.
Formally Define CLV When You Use It
CLV should be defined when it is used so that educa-
tors and students can follow what CLV is trying to do.
36 Marketing Education Review
Use a Standard Definition
Quantitative expressions have most value when they
have a clear, commonly understood definition. We
advocate for a specific formula for CLV, however, our
larger point is that marketing needs to move towards
more consistent terminology. It is confusing for alter-
native, contradictory uses of a term to be simulta-
neously accepted.
Use Marketing Accountability Standards Board
Definitions Where Possible
The Marketing Accountability Standards Board is run-
ning a Common Language project, endorsed by the
American Marketing Association, Marketing Science
Institute, and the Association of National Advertisers.
This provides advice on a definition of CLV, (Marketing
Accountability Standards Board, 2015), which we fol-
low here. Consult the Marketing Accountability
Standards Board’s Common Language project for defi-
nitions of terms and formulas to use (https://themasb.
org/). When standard definitions are used, a marketing
educator can be confident that today’s case will not
confuse the message from last weeks’ case. It will also
help educators who are not experts in an area to ensure
that they teach accepted best practice. Furthermore,
students will not be confused by professors using con-
tradictory definitions.
Where Marketing Accountability Standards
Board Terms Are Not Helpful, Improve Them
Not every term is in the Common Language project.
If so, we recommend that scholars share their terms
with those running the project. A scholar may also
disagree with the terminology adopted by the
Common Language project. In such cases, we suggest
that the disagreement be brought to light. Those
listening can develop their own thoughts. This
would contrast with the current situation, in which,
either through carelessness or unstated disagree-
ments, there is significant, but unacknowledged, var-
iance in definitions. Those paying close attention can
only be confused and may wrongly blame themselves
for the confusion. In this way, students’ and man-
agers’ confidence in their quantitative abilities may
be undermined when, in reality, it is academic advice
that is confusing.
Do Not Subtract Acquisition Costs Before
Reporting CLV
Acquisition costs should never be subtracted from CLV
before it is reported. As noted above there is no need to
do this even for prospective or historic customer relation-
ships. Having contradictory CLV formulas generates con-
fusion when claims about CLV applicable to one formula
are inappropriately applied to the other formula.
Explain What You Are Calculating CLV For
Think through how to apply CLV in any given situation
and explicitly explain necessary assumptions (e.g., that the
future will be like the past). In general, calculations must
impact future behavior to be useful to managers.
Academics Should Be Willing To Disagree With
Colleagues
We owe it to our students, the managers who employ
them, and the marketers who use academic ideas to be
clear what we mean. If you think a colleague’s materials
are confusing say so. It is better to help each other
correct our inevitable mistakes rather than to confuse
a new generation of marketers.
Business Schools Should Adopt In-House
Quantitative Styles
We recommend that publishing schools adopt a house
style for the reporting of numbers in teaching materi-
als. This should not exclude publication of works that
do not use the adopted style but any deviation should
be explained. Teaching material should answer the fol-
lowing questions: Has the house style changed? Why
did you choose this alternative formula? What is the
effect of the change?
Schools Should Employ Quantitative Editors
Schools have their own writing styles, use language edi-
tors, and maintain uniform visual identities, but can
appear to pay less attention to the quantitative side of
teaching materials. We found obvious mistakes in the
teaching materials that we examined. Unintended errors
are expected so we suggest quantitative skills be a vital part
of the editorial repertoire of a publishing school. These
editors need not have skills to develop the new

mathematical approaches; however, they should be profi-
cient enough to remove obvious typos in mathematical
content.
Students Should Push Their Teachers on the
Application of Any Formula
Students can help ensure that teaching materials are
consistent by asking for explanations of differences.
Managers Should Aid Academics in Producing
Clear Concepts
One of the problems with the version of CLV that
subtracts acquisition costs is that it should not be
used to inform managerial decision making about cur-
rent customers. Managers can help academics in seeing
that CLV, like all quantitative expressions, is most use-
ful when it can inform actions.
These recommended changes should help market-
ers better understand the nature of CLV. The lessons
go much further than just the case-based materials
we review. We hope to influence the teaching of
quantitative marketing more generally. There is
much to be gained from a more consistent approach
to marketing calculations and we hope to improve
the way CLV is taught. This will help educators
guide the marketing discipline towards a more con-
sistent and accurate use of numbers. Such an
approach will help allow for more accountability in
marketing (Rust, Ambler, Carpenter, Kumar, &
Srivastava, 2004), create a better partnership between
marketing and finance (Meier, 2016), and, hopefully,
raise the status of the entire discipline.
REFERENCES
Avery, J., & Fournier, S. (2014). Filene’s Basement: Inside a Fired
Customer’s Relationship. Cambridge, MA: Harvard
Business School.
Avery, J., & Steenburgh, T. (2014). Marketing Tutorial:
Customer Lifetime Value. Cambridge, MA: Harvard
Business School.
Bendle, N. T., & Bagga, C. (2016). The metrics that marketers
muddle. Sloan Management Review, 57(3), 73–82.
Bendle, N. T., Farris, P. W., Pfeifer, P. E., & Reibstein, D. J.
(2010). Metrics that Matter—to Marketing Managers.
Marketing, JRM, 1, 18–23. JOUR.
Spring 2017 37
Bendle, N. T., Farris, P. W., Pfeifer, P. E., & Reibstein, D. J.
(2015). Marketing metrics: The manager’s guide to measur-
ing marketing performance (3rd ed.). Upper Saddle River,
NJ: Pearson FT press.
Berger, P. D., & Nasr, N. I. (1998). Customer lifetime value:
Marketing models and applications. Journal of Interactive
Marketing, 12(1), 17–30. doi:10.1002/(SICI)1520-6653
(199824)12:1<17::AID-DIR3>3.0.CO;2-K
Fader, P. S. (2013). When giving your customers less is more:
Not All Are Worthy. Iese Insight, Second Qua, (17), 15–21.
doi:10.15581/002.ART-2382
Fader, P. S., & Hardie, B. G. S. (2012). Reconciling and Clarifying
CLV Formulas (March). Retrieved from http://brucehardie.
com/notes/024/
Fader, P. S., & Hardie, B. G. S. (2014). What’s Wrong With This
CLV Formula? (December). Retrieved from http://www.bru
cehardie.com/notes/033/what_is_wrong_with_this_CLV_
formula.pdf
Farris, P., Pfeifer, P., & Bendle, N. (2005). Customer
Profitability. Charlottesville, VA: Darden Business
Publishing.
Fujikawa, Y., Yang, P., Main, G., & Claiborne, D. (2008). Ad-
Comm Group “Whitebook”: Cross-Marketing Platform For
Luxury Brand In Japan. Tokyo, Japan: Hitotsubashi
University.
Gool, J., Van, Roodhooft, F., & Kemseke, P. (2015). Customer
Lifetime Value at Comtel. Ghent, Belgium: Vlerick
Business School.
Gupta, S. (2014). Customer Management: Core Marketing
Curriculum Reading. Cambridge, MA: Harvard Business
School.
Gupta, S., & Lehmann, D. R. (2006). Customer lifetime value
and firm valuation. Journal of Relationship Marketing, 5(2–
3), 87–110. JOUR. 10.1300/J366v05n02_06
Gupta, S., Lehmann, D. R., & Stuart, J. A. (2004). Valuing
customers. Journal of Marketing Research, 41(1), 7–18.
doi:10.1509/jmkr.41.1.7.25084
Hennessy, J., & Meagher, E. (2012). Maru Batting Center:
Customer Lifetime Value. Evanston, IL: Kellogg School of
Management, Northwestern University.
Hollensen, S. (2006). Developing and Managing Customer
Relationships. Bedfordshire, UK: The Case Centre,
Cranfield University.
Jeeson, K. J., Jathar, A., & Kumar, U. D. (2013). Consumer
Choice between House Brands and National Brands in
Detergent Purchases at Reliance Retail. Bangalore, India:
Indian Institute of Management.
Joo, Y.-H., Kim, Y., & Yang, S.-J. (2011). Valuing customers for
social network services. Journal of Business Research, 64
(11), 1239–1244. doi:10.1016/j.jbusres.2011.06.030
Marketing Accountability Standards Board. (2015). Customer
Lifetime Value. Retrieved from http://www.commonlan
guage.wikispaces.net/Customer+Lifetime+Value
Meier, J. (2016). Creating a partnership between marketing and
finance. In D. W. Stewart, & C. T. Gugel (Eds.), Accountable
marketing: Linking marketing actions to financial performance.
New York, N.Y.: Routledge, MASB.
38 Marketing Education Review
Moon, Y., & Quelch, J. A. (2006). Starbucks: Delivering Customer
Value. Cambridge, MA: Harvard Business School.
Mummalaneni, V. (2014). Reflective Essay and E-Portfolio to
promote and assess student learning in a capstone mar-
keting course. Marketing Education Review, 24(1), 43–46.
doi:10.2753/MER1052-8008240107
Ofek, E. (2014). Customer Lifetime Value (CLV) vs. Customer
Lifetime Return on Investment (CLROI), 9-515–49,
Technical Note.
Pfeifer, P. E., Farris, P. W., & Bendle, N. T. (2014). Customer Lifetime
Value. Charlottesville, VA: Darden Business Publishing.
Pfeifer, P. E., Haskins, M., & Conroy, R. (2005). Customer
lifetime value, customer profitability, and the treatment
of acquisition spending. Journal of Managerial Issues,
XXVII(Spr(1)), 11–25. JOUR.
Pfeifer, P. E., & Ovchinnikov, A. (2011). A note on willingness
to spend and customer lifetime value for firms with
limited capacity. Journal of Interactive Marketing, 25(3),
178–189. doi:10.1016/j.intmar.2011.02.003
Rust, R. T., Ambler, T., Carpenter, G. S., Kumar, V., & Srivastava,
R. K. (2004). Measuring marketing productivity: Current
knowledge and future directions. Journal of Marketing,
68(4), 76–89. JOUR. doi:10.1509/jmkg.68.4.76.42721
Rust, R. T., Moorman, C., & Bhalla, G. (2010). Rethinking
marketing. Harvard Business Review, 88(1/2), 2–8.
Steenburgh, T., & Avery, J. (2010). Marketing Analysis Toolkit:
Customer Lifetime Value Analysis. Cambridge, MA:
Harvard Business School.
Steenburgh, T., Avery, J., & Dahod, N. Hubspot: Inbound
Marketing and Web 2.0(2011).
Venkatesan, R., & Kumar, V. (2004). A customer lifetime
value framework for customer selection and resource
allocation strategy. Journal of Marketing, 68(4), 106–125.
JOUR. doi:10.1509/jmkg.68.4.106.42728
Copyright of Marketing Education Review is the property of Taylor & Francis Ltd and its
content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder's express written permission. However, users may print, download, or email
articles for individual use.