Customer lifetime value (ClV) modeling in retail banking

Based on regression models, simple customer’s attributes (age, income, assets and debt) - which banks usually use to identify who their most valuable customers are - were found not to be very effective at explaining and predicting customer’s Gross Income. Thus, banks are recommended to consider alternative methods. A CLV estimation model based on Markov Chains is presented and tested as a potential alternative, even though our application is still rather conceptual, with limitations which would have to be addressed in future research. Also, another methodology based on retention cohort analysis is presented, aimed at estimating CLV for individual products