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The Impact of customer relationship characteristics on profitable lifetime duration

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Customer management oriented organizations recognize the dynamic evolving nature of the customer-firm relationship over time. The basis of this recognition is an understanding of the customer lifetime duration construct, the customer lifetime profit construct, and the drivers of these two constructs. The applicability of these concepts, however, depends on the context. An area in need for further research is that of non-contractual relationships, relationships between buyer and seller that are not governed by a contract. This study focuses on three key objectives that are important and that have remained unresolved so far. These are to (1) empirically measure profitable lifetime duration for non-contractual customer-firm relationships, (2) propose and test factors that potentially affect a customer’s profitable lifetime duration and, (3) develop managerial implications for building and managing a profitable longer lifetime. The hypothesized antecedent factors include exchange and customer heterogeneity characteristics. If managers can understand the temporal dynamics involved in a customer’s relationship with the firm, they can for example predict the vulnerability of a customer to leave the relationship. Consequently, they can spend marketing dollars more effectively by either not chasing customers “whose time has come” or by employing judicious marketing actions to save customers who are at risk. Factors such as quantity of merchandise returned, across department purchases, company specific charge card ownership in addition to the traditional factors – frequency and monetary value – (recency has already been incorporated in the computation of lifetime duration) are found to be important predictors of a customer’s lifetime duration. The results are validated with a split sample using three cohorts in the B-to-C industry and with data from a high technology firm in the B-to-B industry. The dynamic nature of the customer purchase process is captured in our framework by variables, which vary over time. Several managerial implications are drawn regarding the customer relationship management process.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2001/2001-108.pdf

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Copyright INSEAD. All rights reserved