IDEAS home Printed from
   My bibliography  Save this article

A Model to Determine Customer Lifetime Value in a Retail Banking Context


  • Haenlein, Michael
  • Kaplan, Andreas M.
  • Beeser, Anemone J.


During the past decade, the retail banking industry started to face a set of radically new challenges that had an overall negative impact on industry margin and profitability. In response to these challenges, more and more retail banks have focused on increasing the scale of their operations, which has led to a rising importance of mergers and acquisitions (M&A). From a Marketing perspective, M&A transactions are nothing other than the acquisition of the customer base of one company by another one, usually based on the assumption that the acquiring bank can manage this customer base more profitably than the selling bank was able to. It is therefore not surprising that questions about the valuation of customers have become more important than ever in the retail banking industry. Our article provides a contribution in this area by presenting a customer valuation model that we developed in cooperation with a leading German retail bank, which takes account of the specific requirements of this industry. Our model is based on a combination of first-order Markov chain modeling and CART (classification and regression tree) and can deal equally well with discrete one-time transactions as with continuous revenue streams. Furthermore, it is based on the analysis of homogeneous groups instead of individual customers and is easy to understand and parsimonious in nature. In our article we provide proof of the practical value of our approach by validating our model using 6.2 million datasets. This validation shows how our model can be applied in day-to-day business life.

Suggested Citation

  • Haenlein, Michael & Kaplan, Andreas M. & Beeser, Anemone J., 2007. "A Model to Determine Customer Lifetime Value in a Retail Banking Context," European Management Journal, Elsevier, vol. 25(3), pages 221-234, June.
  • Handle: RePEc:eee:eurman:v:25:y:2007:i:3:p:221-234

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Matsuoka, Kohsuke, 2021. "A framework for variance analysis of customer equity based on a Markov chain model," Journal of Business Research, Elsevier, vol. 129(C), pages 57-69.
    2. Greig Cowan & Salvatore Mercuri & Raad Khraishi, 2023. "Modelling customer lifetime-value in the retail banking industry," Papers 2304.03038,
    3. Terpstra, Maarten & Verbeeten, Frank H.M., 2014. "Customer satisfaction: Cost driver or value driver? Empirical evidence from the financial services industry," European Management Journal, Elsevier, vol. 32(3), pages 499-508.
    4. Tu Van Binh & Ngo Giang Thy & Ho Thi Nam Phuong, 2021. "Measure of CLV Toward Market Segmentation Approach in the Telecommunication Sector (Vietnam)," SAGE Open, , vol. 11(2), pages 21582440211, June.
    5. Arno de Caigny & Kristof Coussement & Koen W. de Bock & Stefan Lessmann, 2019. "Incorporating textual information in customer churn prediction models based on a convolutional neural network," Post-Print hal-02275958, HAL.
    6. De Caigny, Arno & Coussement, Kristof & De Bock, Koen W. & Lessmann, Stefan, 2020. "Incorporating textual information in customer churn prediction models based on a convolutional neural network," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1563-1578.
    7. Bérangère Brial & Evelyne Rousselet, 2017. "Sales force in front of their poor customers: the case of retail banking [Les comportements des vendeurs face à leurs clients en situation de pauvreté: le cas de la banque de détail]," Post-Print hal-01682321, HAL.
    8. Haenlein, Michael & Kaplan, Andreas M., 2009. "Unprofitable customers and their management," Business Horizons, Elsevier, vol. 52(1), pages 89-97.
    9. Ekinci, Yeliz & Ülengin, Füsun & Uray, Nimet & Ülengin, Burç, 2014. "Analysis of customer lifetime value and marketing expenditure decisions through a Markovian-based model," European Journal of Operational Research, Elsevier, vol. 237(1), pages 278-288.
    10. Arthur J. Lin & Hai-Yen Chang & Sun-Weng Huang & Gwo-Hshiung Tzeng, 2021. "Criteria affecting Taiwan wealth management banks in serving high-net-worth individuals during COVID-19: a DEMATEL approach," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 26(4), pages 274-294, December.
    11. Yeliz Ekinci & Füsun Ulengin & Nimet Uray, 2014. "Using customer lifetime value to plan optimal promotions," The Service Industries Journal, Taylor & Francis Journals, vol. 34(2), pages 103-122, January.
    12. Rong-Ho. Lin & Wei-Wei Chuang & Chun-Ling Chuang & Wan-Sin Chang, 2021. "Applied Big Data Analysis to Build Customer Product Recommendation Model," Sustainability, MDPI, vol. 13(9), pages 1-45, April.
    13. Polo, Alberto, 2021. "Imperfect pass-through to deposit rates and monetary policy transmission," Bank of England working papers 933, Bank of England.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eurman:v:25:y:2007:i:3:p:221-234. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.