For Business Marketing Class (MBA Level):
When a financial institution switches from one phone or computer system to another, the original supplier is right apt to regard the account as lost for good. Because the actual switch had to overcome significant costs – investments in equipment, habits, and the painful set-up period for the new system – the original supplier is out in the cold, with little chance of ever returning to favor.
For these types of accounts, lifetime value gets a highly deserved focus from vendors. It is an effective motivation for quality, logistical efficiency, and responsiveness because it is highly sensitive to the retention rate.
Plot the eight-year CLV for an account that nets your firm $40,000 per year as its annual retention probability moves from 0.5 to 0.9.