The role of channel quality in customer equity management

• Published in: Journal of business research Vol. 60; no. 12; pp. 1243 - 1252
• Main Authors: Dong, Weimin, Swain, Scott D., Berger, Paul D.
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01.12.2007; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Business Research
• Subjects: Acquisition; Customer equity; Customer equity Customer lifetime value Resource allocation Acquisition Retention Decision calculus; Customer lifetime value; Customer retention; Customers; Decision calculus; Distribution channels; Enterprises; Equity; Management; Mathematical models; Procurement; Relationship marketing; Resource allocation; Retention; Sensitivity analysis; Studies; Customer lifetime value; Retention; Decision calculus; Acquisition; Customer equity; Resource allocation
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2007.05.005

Maximization of customer equity is a core objective of customer–company relationship management. We present an extended model of customer equity for determining the optimal allocation of marketing resources across acquisition and retention activities. Focusing on the negative relationship between acquisition and retention, we motivate channel quality as a relevant decision variable, explicate its role in the model, and demonstrate the existence of an optimal value. In addition, rather than making concavity assumptions about acquisition and retention rate response curves, we use the flexible ADBUDG model (Little, JDC, Models and Managers: the Concept of a Decision Calculus. Manag Sci 1970; 16(8): 466–484.), which allows for both S-shaped and strictly-concave relationships, and parameterize it using decision calculus. We show how to estimate and apply the model and then provide sensitivity analyses with respect to changes in the true values of model parameters as well as inaccuracy in managerial inputs. We conclude by comparing our model with extant models and discussing the implications of our research.