Impact of Financial and Nonfinancial Constructs on Customer Lifetime Value (CLV): U.S. Retailer’s Perspective

Abstract

Abstract Purpose This customer lifetime value (CLV) study developed and refined an instrument to measure CLV from a retailer’s perspective using both financial and nonfinancial constructs. Design/methodology/approach The authors created scale items to measure the financial (monetary value and marketing costs) and nonfinancial constructs (trust, loyalty, purchase frequency, recency, and churn rate). They assessed composite reliability as well as discriminant and convergent validity. Findings A varimax rotation indicated strong items for trust and recency under the nonfinancial factors as well as monetary value and marketing costs under the financial factors. Additionally, the measurement model indicated a strong model fit. Practical implications The findings reinforce the notion of using financial factors to determine CLV. However, nonfinancial factors are also relevant for explaining CLV. These findings fundamentally shift the argument about the determinants of CLV as well as open the door for further research about the nonfinancial factors of CLV. Originality This is the first study to create scale items for measuring the financial and nonfinancial constructs of CLV. The research provides useful theoretical and managerial insights regarding the consideration of nonfinancial factors for refocusing marketing and retailing efforts toward consumers. The study findings reinforce the notion that all customers are not equally valuable.