Various Exchanges

When beginning to think about the various exchanges that I interact with on a daily, weekly and monthly basis, I find that there are far more than I ever considered.  Everything from eating establishments and grocery stores to gas stations on into utilities, banking institutions and entertainment venues.  The list can become quite long very quickly.  Some have a basis in a long term relationship (i.e. the grocery store preferred) and some are not (gas station with the lowest price).  If pressed to guess at a ratio, I would say that fifty percent of the exchanges I frequent are based on long term relationships and fifty percent are not based on long term relationships.  In the case of long term relationship exchanges, how value is created really depends on what the exchange is.  At the grocery store where a long term relationship is desired, value is created by pleasant personnel, well organized design of isles, additional services such as a pharmacy, deli and florist.  When it comes to a gas station, value can be created by the variety of convenience items offered in the store, as well as, the addition of a car wash and possible reduced gas price based on the purchase of a car wash.  To summarize, how value is created depends greatly on what the product or service is being offered as well as who the target customer base is.

There are so many variables that can affect the Customer Life-Time Value (CLV) for a product, service or store which will be unknown to the customer that in deciding which product or service to calculate, I decided to go with something I am familiar with.  I have chosen to base my estimate on my life time value to DirecTV.  To begin with I feel it is important to determine what costs I represent to DirecTV as a new customer.  They offer free hardware, installation and entertainment packages.  To start with, I will receive one high definition digital video recorder valued at around three hundred and fifty dollars ($350.00), as well as, wireless receivers for each additional room valued at around one hundred dollars each ($100.00).  In my case, I use the maximum offered for free, which is four, so that is a total of seven hundred fifty dollars for the hardware ($750.00).  Next, the installation is valued at around two hundred and fifty dollars ($250.00).  Finally, as a new customer, I receive the NFL Ticket for free, valued at around four hundred dollars ($400.00) as well as free premium channels like HBO, Showtime & Cinemax for three months valued at forty five dollars ($45.00) for the three month period.  This brings my grand total initial cost to one thousand four hundred and forty five dollars ($1,445.00).  For receiving these benefits I must agree to a two year contract at a certain level of service.  I chose a higher level than is required, so I will base my calculations on my service level.  The first three months I pay approximately ninety five dollars ($95.00) and for the remaining twenty one months I pay one hundred forty five dollars ($145.00) as well as an additional for hundred dollars ($400.00) for each following year of the NFL Ticket.  This does not contain any calculation for the costs associated with providing the programming (i.e. fees to networks and premium channel companies) nor does it contain any calculation for the costs of satellite usage, customer service employees, etc.  Below is a table showing my calculation of the Net Present Value (NPV) for the revenue generated by me as a customer over a ten year period.  This represents a CLV of twelve thousand six hundred and fifty dollars($12,650)