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Strategic segmentation using outlet malls (RV of 2004/01/MKT)

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This research presents a conceptual framework that is used to address two key questions: 1) how much marketing spending to allocate to customer acquisition and retention and 2) how to distribute that allocate across communication channels. Extending the conceptual framework, this research applies a statistical model that links acquisition, retention, and long-term customer profitability in a unified framework to empirically investigate the how and how much questions. By simultaneously modeling these three facets of the customer-firm relationship, the authors' framework not only captures their interrelationship, but can also be used to make informed resource allocation decisions, which require tradeoffs between these key elements. A key finding for their empirical context is that there are decreasing returns to both acquisition and retention investments. In this study, they also find that misallocating investments (i.e., over spending or under spending by the same amount) has an asymmetrical effect in terms of customer profitability and ROI. Further, any suboptimal allocation of resources on either retention or acquisition affects profitability. Specifically, the authors find that it is more detrimental to underspend than overspend from the optimal budget. Managers can use the proposed integrated framework not only for better understanding of profitability, but also know how to maximize profitability through optimal allocation of resources.

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