Applications for the lifetime value model in modern newspaper publishing

Abstract

The central tenet of the Lifetime Value Model (LTV) is that not all customers are created equal. Simply defined, the LTV calculates the cost ofattaining and servicing customers, and weighs that cost against the customer's likelihood to remain or grow loyal over time. Database marketing provides an analytical tool to assist business managers in calculating lifetime value and identifying and segmenting these longterm, desirable customers. As Wang and Spiegel noted, "One way that a company's success can be measured is by the value of its customer base, and especially its base of repeat customers. With proper strategic planning, database marketers can learn to systematically manage and ultimately improve the value of a repeat customer base" (2:73). This approach requires a slow·burn mentality on the part of management, as it may take years, even decades, for a customer's potential value to be fully realized. Dwyer wrote: "By giving gross consideration to LTV, programs that do less than break-even on a short-run basis may be 'scored' favorably on the expectation of future business" (1:00). Furthermore, the overall value of developing such a customer base can go well beyond Simple sales gains. Wang and Spiegel observed: "The ability to measure and manage the value of a repeat cus· tomer base can lead to a powerful competitive advantage, not only on formulating cost·effective marketing strategies, but also in planning the appropriate response to any future threats launched by external competitors" (2:81). From insurance companies to retailers, LTV has proven to be a valuable tool that can improve the long-term success of targeted marketing efforts. We believe that the LTV has equally valuable applications for mass marketing efforts. Publishers of narrow interest magazines, such as Time·Life and Meredith Publishing, have used LTV since the 1970s to improve their circulation strategy. Newspaper publishers will find, even with their broadly defined circulation, that they too can benefit from LTV models. In today's competitive publishing environment, marketers need to segment and target readership better to meet advertising and circulation goals. Building a lifetime value for each reader helps them do that. Because the newspaper product is literally recreated dally, it has a unique opportunity to create a relevant product for its readers. In doing so, the newspaper can build its franchise and potentially develop a relationship that nearly equals the read· er's lifetime. We suggest that LTV is an effective tool with which to accomplish this.