Given below are two statements:

Statement I: Marketing managers must calculate customer lifetime values of their customer base to understand their profit implications.

Statement II: Activity - based costing, an accounting technique, is very useful for conducting customer profitability analysis.

In the light of the above Statements, choose the most appropriate answer from the options given below:

The correct answer is Both Statement I and Statement II are correct

Key PointsCustomer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client.

When measuring CLV, it’s best to look at the total average revenue generated by a customer and the total average profit. Each provides important insights into how customers interact with your business and if your overall marketing plan is working as expected.

Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product.