Thus, the individual-level utilities result in individual-level switching matrices, which result in an individual-level CLV.
Brand switching and customer equity. To make the CLV calculation more specific, each customer i has an associated J × J switching matrix, where J is the number of brands, with switching probabilities pijk, indicating the probability that customer i will choose brand k in the next purchase, condi- tional on having purchased brand j in the most recent pur- chase. The Markov switching matrix is denoted as Mi, and the 1 × J row vector Ai has as its elements the probabilities of purchase for customer i’s current transaction. (If longitu- dinal data are used, the Ai vector will include a one for the brand next purchased and a zero for the other brands.)
For brand j, dj represents firm j’s discount rate, fi is cus- tomer i’s average purchase rate per unit time (e.g., three pur- chases per year), vijt is customer i’s expected purchase vol- ume in a purchase of brand j in purchase t,6 πijt is the expected contribution margin per unit of firm j from cus- tomer i in purchase t, and Bit is a 1 × J row vector with ele- ments Bijt as the probability that customer i buys brand j in purchase t. The probability that customer i buys brand j in purchase t is calculated by multiplying by the Markov matrix t times: