Novo (2006) describes Customer lifetime value (LTV) as the present value of the stream of future profits expected over the customers lifetime purchases. Companies can look at their investments in terms of cost per sale, rate of customer retention and also conversion of prospects.
Relationship leads to loyalty, and loyal customers are supposed to buy more, pay higher prices and bring in new customers through word-of-mouth support (Morgan et al.,2000). However, some of these profitability-arguments related to relationship banking have been challenged by Reinartz and Kumar (2002 who compared the behaviour, revenue, and profitability of more than 16,000 individual and corporate customers over a. LTV is also used as a convenient yardstick of performance, however, it has tended to become a bit too much of a 'holy grail' for corporate, marketing and sales executives, to the extent that entire conferences and seminars are often devoted to helping optimize it (Romano Fjermesta, 2003; pg 233). Benefits of Customer Retention, dawes and Swailes (1999) explain that successful customer retention circumvents the costs of seeking new and potentially risky customers, and allows organizations to focus more accurately on the needs of their existing customers by building relationships (p36). Reynolds (2002) suggests that once a company acquires a group of customers, it can retain that group by making them feel special through customer recognition. Reichheld (2006) in his article Learning from Customer Defections identified that longer a customer stays with a company, the more they are worth as in the long-term customers buy more, take less of a companys. Customer retention is clearly marketing topic of considerable current and practical interest. Whilst some of what has been written is of dubious value, and some isn't actually even about customer retention at all, it is felt that ideas put forward should be allowed to stand on their merits. Marketing has traditionally focused on market share and customer acquisition rather than on retaining existing customers and on building long-lasting relationships with them (Kotler, 2003). However, keeping the customer has become regarded as equally, if not more important, since (Badgett et al., 2004) reported that a 5 per cent increase in customer retention generated an increase in customer net present.