The lifetime value of a customer, defined to be the
expected present value of the net cash flows from the
firm’s relationship with the customer over his or her
lifetime, is often used as an upper limit on spending to
acquire the customer. The purpose of this paper is to
examine carefully this use of customer lifetime value.
This paper will offer several examples where acquiring a
customer can affect (either positively or negatively)
the firm’s relationship with its other customers and/or
prospects. In other words, sometimes the acquisition of
a customer affects the lifetime values of the firm’s
other customers and prospects. In those situations, the
firm must account for these higher order effects when
setting a limit on acquisition spending. pdf-file 1999
