Author(s)

Darkhijav Bayanjargal¹, Batsukh Davaasuren²

¹School of Applied Science and Engineering, National University of Mongolia, Ulaanbaatar, Mongolia.
²Business School, National University of Mongolia, Ulaanbaatar, Mongolia.

It is very important for a company to determine spending for acquisition and retention of customers which affect the Customer lifetime value of the company. In this paper, we formulate the Customer lifetime value model as an optimal control problem. The obtained problem is to find an acquisition policy which maximizes the present value of all future profits generated from a customer. Here the state variable is the average margin for each customer about how much each customer contributes to the company and the control variable is the cost of acquisition. We use the maximum principle for optimality to solve the problem, estimate some parameters of the problem using statistical data for Mobile service sector of Mongolia and calculate the optimal Customer lifetime values of the sector for some values of parameters.

Customer Lifetime Value, Acquisition Cost, Optimal Control

Bayanjargal, D. and Davaasuren, B. (2020) An Optimal Control Approach to Customer Lifetime Value. iBusiness, 12, 150-159. doi: 10.4236/ib.2020.124011.