Research Of Customer Life-Time Value Promotion Based On System Dynamics

Customer life-time value is an important part of customer relationship management. This paper focuses on the study of CLV promotion and proposes a dynamic promotion model for CLV based on system dynamics. The principal results are as follows:Firstly, according to the analysis of influence factors and drive factors of CLV, SD model of CLV promotion is constructed by using the method of system dynamics.Based on the theory about customer value and customer perceived value, this paper builds SD model of CLV promotion with system dynamics after the complicated relationship among dynamic factors is sorted out. The model contains 4 subsystems which are Revenue Subsystem, Cost Subsystem, Lifetime Subsystem and Customer Subsystem. There are 49 variables, 36 feedback loops and 2 typical basic SD model in the SD model. Following this study, we can explore the promotion path of CLV more directly and obviously, which is never referred in other research work.Secondly, base on the operating data of a telecom operator in China, this paper validates the reliability of SD model of CLV promotion.In the study, telecom operator's operating data from Jan 2005 to Sep 2006 is collected, while 118 questionnaires for subscribers are also analyzed (Reliability Coefficient Alpha>0.7). 4 variables in the SD model is tested by Vensim PL5.4 platform, which are revenue, cost, total customers, investment. As MAPE of the 4 variables are 2.7%, 8.2%, 7.0% and 11.1%, the reliability of SD model is proved.Thirdly, by regulating the variable's parameters, the key control points for CLV promotion are found out, through which the paper proposes CLV promotion suggestions for telecom operators.By means of SD parameter regulation method, the parameters of 10 variables are regulated. In the parameter regulating analysis, voice service tariff, customer satisfaction and customer's disposal income influence CLV most significantly. When voice service's tariff and customer satisfaction decline by 20% independently, CLV is promoted by 33.6% and declined by 29.4% separately. When customer's disposal income increases one and a half times, CLV is promoted by 12.7%. Considering the practical situation of telecom operators, this paper proposes CLV promotion suggestions, which includes competitive tariff strategy, logical customer expectation management and marketing strategy that adapt to customer dispose income change.