FACULTY SPOTLIGHT SERIES
TEXAS WOMAN’S UNIVERSITY COLLEGE OF ARTS AND SCIENCES
Risk-Adjusted Lifetime Value: A New
Approach to Valuing Customers
in the Credit Card Industry
When: Tuesday, December 1, 2009, 12:25-12:55
Where: Stoddard Hall 308
Who: Dr. Shweta Singh (School of Management)
Presenter’s session description: The traditional approach to valuing customers is based solely on the
revenue streams that are generated by the customers. Most of the existing models of Customer
Lifetime Value (CLV) follow this traditional approach. However, in the financial services
industry, the customers who contribute the most to the profitability of a firm are also the most
risky. If the riskiness of a customer is not taken into account, firms may overestimate the true
value of that customer. Using data from a prominent credit card company, we identify seven
different types of risk that a customer potentially poses to a firm. We create a single measure of
Risk-Adjusted Lifetime Value (RALTV) for each customer. We compare traditional CLV and
RALTV scores in terms of predicted customer value and find that RALTV scores are a better
indicator of a customer’s true value. We then use the RALTV scores to determine the impact of a
firm’s acquisition and retention strategies on RALTV.
Description of the series: Sponsored by the College of Arts and Sciences, this lunchtime (“brown
bag”) series of presentations features ongoing research, scholarship, and creative efforts by
faculty members in the College. The purpose of the series is to further promote those activities
at TWU and to foster collegial and interdisciplinary relations among faculty members across the
College and the University. Although the presentations are by faculty members in the College,
anyone interested in the sessions is welcome to attend. Presentation proposals are reviewed by
an advisory committee consisting of representation from all the major areas of the College.
Future sessions (TBA): Drs. Rylander and Maguire on applying the SENCER model at TWU; Dr. Sulik
on breast cancer; and Dr. Grigorieva on preparing Math Olympiad winners.
For further information: Presenter: SSingh2@mail.twu.edu; Series: SSouris@twu.edu.