Customer lifetime network value: customer valuation in the context of network effects

Abstract

Nowadays customers are increasingly connected and extensively interact with each other using technologyenabled media like online social networks. Hence, customers are frequently exposed to social influence when making purchase decisions. However, established approaches for customer valuation mostly neglect network effects based on social influence. This leads to a misallocation of resources. Following a design-oriented approach, this paper develops a model for customer valuation referred to as the customer lifetime network value (CLNV) incorporating an integrated network perspective. By considering the customers' net contribution to the network, the CLNV reallocates values between customers based on social influence. Inspired by common prestige-and eigenvector-related centrality measures it incorporates social influence among all degrees of separation acknowledging its viral spread. Using a real-world dataset, we demonstrate the practicable applicability of the CLNV to determine individual customers' value.

Measuring network effects of digital industrial platforms: towards a balanced platform performance management

“…On the other hand, digital industrial platforms with a transaction focus (i.e., industrial marketplaces) connect manufacturing firms (i.e., along the supply chain) to optimize supply and demand and manage distributed production, enabling new production paradigms (Müller et al 2020;Friedrich et al 2022;Mosch et al 2023). Real-world manifestations indicate that many of these platforms evolve into hybrids (Cusumano et al 2019).…”

“…Similarly, Song et al (2018) consider the specificity of software development and illustrate that developers value platforms with a larger user base, while users value platforms with a larger variety of complements, which potentially create added value through more useful complements. With that in mind, the effects of such characteristics as reputation, unique capabilities, the ability to close structural holes, the centrality of complementors, and their distinctive capabilities or knowledge are reported to influence the network effects (Afuah 2013;Däs et al 2017;Tang et al 2020;Haurand 2022). This benefit-creating composition of the network is subsequently referred to as ecosystem utility and should be considered to develop measures of same-side and cross-side network effects.…”

“…While strong network effects have led to dominant market positions of individual firms in platform-mediated business-to-consumer (B2C) markets (Cusumano et al 2019), this effect has hardly been observed so far for the highly fragmented and competitive IIoT domain (Lueth 2019). Despite the rich scientific foundation on the network effect theory, existing research recognizes that network effects' 1 3…”

Electronic markets on transaction costs

“…Titled BCustomer lifetime network value: customer valuation in the context of network effects^Miriam Däs, Julia Klier, Mathias Klier, Georg Lindner and Lea Thiel present an approach that emphasizes the networked nature of transactions and the influence of social networks. Their customer lifetime network value model introduces an integrated network perspective, which convincingly includes the social influence in the measurement of customer value (Däs et al 2017). The two following papers both target product returns, which have become a key challenge in the settlement phase of e-commerce transactions.…”

Determining optimal marketing and pricing policies by considering customer lifetime network value in oligopoly markets

“…In accordance with most of the models presented for CLV, the companies typically pay much attention to the customers' benefits rather than the number of customers being absorbed by the existing ones. Therefore, in the light of recent events in CLV, there is now considerable concern about the communication networks [3]. Some companies, such as online stores with the Marketplace business model (example, e-Bay), offer their services to the buyers free and receive membership fees from companies and vendor brands in return.…”