The impact of personalised incentives on the profitability of customer retention campaigns

Traditional approaches to managing customer churn have typically concentrated on those customers most likely to defect. While accurately predicting customer churn probability is important, this metric alone does not sufficiently empower managers to make optimal decisions. Hence, the current study focuses on the relationship between retention incentives and profit maximisation. Specifically, we improve existing churn management practices by: (1) allowing for customer heterogeneity in incentive redemption behaviour, (2) introducing the dependence of the probability of accepting an incentive on its monetary value, and (3) offering an improved model for developing retention campaigns. We support our conclusions with empirical data and simulations and make tangible managerial recommendations.     

How competent are consumers? The case of the energy sector in France

This paper discussed the notion of value co‐creation and the concept of customer competence as suggested by this notion. This led us to consider the competent customer as a social construction related to managerial representations. In order to examine this issue, a longitudinal exploratory research based on participant observation and in‐depth interviews with employees of a French energy supplier was conducted to explore whether customers are perceived as competent or incompetent market actors. The data analysis revealed four categories illustrating customers' profiles coping with the new situation of the ‘Utility X’ group in the energy sector. ‘Utility X’ employees define their customers according to four profiles: myopic, ignorant, uncreative and organizer of company resources. Even if the marketing studies that share the Service‐Dominant Logic point‐of‐view suggest that the customer would be competent at all times, our findings showed that customer competencies are in fact socially constructed and emerge partially from managerial representations. Therefore, the adoption by companies of a marketing philosophy (‘market with’ philosophy), in which the customer and supply chain partners are collaborators in the entire marketing process, seems only possible if they recognize customers' competencies and identify situations when customers do not activate their competencies or do not have the resources that enable them to develop their competencies.     

Experience, socialization and customer retention: Lessons from the dance floor

Experience and socialization are key factors in customer commitment and defection decisions. To study the effect of experience and social relationships on customer retention, we analyze a reality-mined co-presence network of health club members over a period of 4 years. Since central customers in the network have more social ties they will lose if they defect, we use centrality as a proxy for customer relationship switching costs. We find that long-standing customers do have a lower chance of renewing their contracts. However, in line with theoretical predictions (Burnham et al., Journal of the Academy of Marketing Science 31(2):109–126, 2003), the consumer’s centrality in the network (reflecting a social cost of defection) reduces customer churn rate. This study’s results indicate that the inclusion of social effects increases the predictive power of the customer churn model (Nitzan and Libai, Journal of Marketing 75(6):24–38, 2011), thus contributing to our understanding of the role social networks play in customer decisions.     

Bayesian estimation of a simultaneous probit model using error augmentation: An application to multi-buying and churning behavior

Researchers in marketing are often interested in analyzing how an agent’s discrete choice decision affects a subsequent or concurrent discrete choice decision by the same or different agent. This analysis may necessitate the use of a simultaneous equations model with discrete and continuous endogenous variables as explanatory variables. In this paper, we offer an error augmentation approach to Hierarchical Bayesian estimation of a simultaneous bivariate probit model containing both discrete and continuous endogenous variables. We accomplish the error augmentation in our MCMC algorithm using a Metropolis-Hastings step that generates the error components of the latent variables in our model. Using simulated data, we demonstrate that our error augmentation algorithm recovers closely the true parameters of the simultaneous bivariate probit model. We then apply our algorithm to customer churn data from a wireless service provider. We formulate a simultaneous bivariate probit model to study the impact of a customer’s multiple product relationships with a firm (multi-buying) on the likelihood of churn by that customer. The empirical results show that the act of multi-buying significantly reduces churn even though the customers who are more predisposed to multi-buy have an inherently higher predisposition to churn.     

Customer Valuation as a Driver of Relationship Dissolution Sabrina Helm Heinrich-Heine-Universitaet,Germany

Abstract

As all customers are not created equal (Hallberg & Ogilvy, 1995), the different contributions of customers to a supplier's goals have to be evaluated to grant efficient relationship marketing. Furthermore, a handling system has to be developed for unprofitable customer relationships. This is a hitherto neglected field, as marketing researchers and practitioners are generally rather interested in attaining and keeping customers, not in the ending of relationships. The article aims at integrating the concepts of customer equity and profitability with approaches of relationship dissolution, which have recently emerged in the literature. Different aspects of calculating the value of customer relationships and value-based criteria that focus on monetary and non-monetary components of a customer's value are discussed. In an exploratory study undertaken in the German mechanical engineering industry, the relevance of customer valuation to dissolution decisions is analyzed.     

Ignoring Your Best Customer?

Abstract

Many organizations devote considerable amounts of money and human resources to develop systems aimed at improving customer retention and profitability. The conventional wisdom is that if retaining the most profitable customers is a good way to increase profitability, then allocating resources to increase the satisfaction of those customers has to be a great objective. However, managers do not observe clear link between satisfaction, retention and profitability. The reason is that different customers have different preferences for convenience as well as different costs associated with switching service providers. These preference and cost heterogeneities have important implications for how companies should target their customer service efforts.

In this paper, we adopt a latent class model to examine the interrelationship amongsatisfaction, retention and profitability. Applying the model to a data of customer satisfaction, self-reported switching propensity, and profitability provided to us by a large Midwestern bank, we make normative statements about which customers are the most criticalones for the company to satisfy and how to satisfy them. The results of this research help to explain why managers have been frustrated by the apparent lack of actionable information present in customer satisfaction data and points to more intelligent ways to use this data.     

Impact of Celebrity Endorsements and Brand Mascots on Consumer Buying Behavior

ABSTRACT

Celebrity and brand mascot endorsements are very popular and often-used techniques by marketers. Marketers believe that celebrity and brand mascot endorsements provide a higher degree of appeal, attention, and customer recall ability compared with when this technique is not used. Marketers also claim that a celebrity affects the credibility of claims about a product and increases the memorabilia factor of the message, which may provide a positive effect that could be generalized to the brand. Primarily this essay has been designed such that it examines various parameters related to advertisements containing celebrity and brand mascot endorsements. Data were been collected from 150 respondents through questionnaire and subjected to t test, χ² test, and difference of means test to enforce the hypotheses that celebrity endorsements have impacts on customers’ perceptions and their purchase intentions. The findings of this study provide insights for marketing and brand managers to design and market their campaigns effectively.     

Trialogue on Facebook pages of grocery stores: Customer engagement or customer enragement?

Abstract

The pervasiveness of social media is compelling businesses to review their way of managing customer experiences. Businesses use social media to interact and engage with customers. Several studies have studied why businesses have adopted social media. However, there is a dearth of research as to why customers interact with businesses on social media in the grocery sector. This paper aims to explore how and why customers react to corporate messages on Facebook pages of Tesco and Walmart. Netnography approach was adopted to gain an insight into the various ways customers engage with the grocery stores on its Facebook pages. This study reveals that social media empower customers, influence the relationships customers have with grocery stores and generate customer engagement. Findings also show that the social customer is both a curse and a blessing to Tesco and Walmart when they create or destroy value for the business. This paper contributes to knowledge by (1) uncovering how customers react to corporate and customer posts on corporate Facebook pages; (2) showing how value can be created and destroyed; and (3) proposing a model illustrating how the main constructs of the study are interconnected: social media, relationship marketing, customer empowerment and customer engagement.     

Customer Divestment

SUMMARY

Customer lifetime value (CLV) models are designed to identify high-value customers to be retained. By implication, the remaining customers must be divested. This aspect of CLV management, customer divestment, has not been addressed in research. In this paper we describe the process of customer divestment, report a framework enabling firms to implement customer divestment (Mittal, Sarkees, and Murshed, 2006), and identify key issues associated with the customer divestment process. In doing so, we formulate some key research questions and an agenda for future research.     

Customer Involvement in Product Development: An Industrial Network Perspective

Purpose: In business markets, working with customers and users has become increasingly important to get knowledge about customer needs and to develop new products. The purpose of this article is twofold: (1) to develop a framework for analyzing customer involvement in product development in a business market context, and (2) to apply this framework to a particular company to describe and analyze how it practices customer involvement.

Methodology/approach: The article takes its main theoretical starting point in the industrial network approach, but also uses other literature from the innovation and product development field. The empirical study applies a qualitative case study approach and focuses on one company in the truck business.

Findings: The suggested framework deals with four key aspects of customer involvement: Why, when, how, and who. The observed pattern of the truck manufacturer shows how dealers, hauliers, and truck drivers are all part of the overall understanding of the customer. These actors are involved for different, typically very clear, purposes at different points in time through surveys, product clinics, and field testing. The pattern, referred to as mixed facilitative, is not one of close collaboration with individual customers, but one of broad involvement of several customers through business intelligence and direct involvement.

Research implications: First, the article provides researchers with a framework and method for studying customer involvement in product development. Second, the case study provides an illustrative example of the customer involvement pattern pursued by a leading company in a major industry. This enhances the understanding of the focal phenomenon, leads to managerial implications, and gives ideas for future research.

Practical implications: There are several managerial implications related to the why, when, how, and who questions. For example, it is pointed out that managers should consider involving customers more extensively than what seems to be common today—for example, by using customers as codevelopers, working with them throughout the entire development process (i.e., not only early and late), and including different types of users (with different requirements and wishes).

Originality/value/contribution of the article: The contribution lies in the development of a framework centered on the four key questions of customer involvement in

product development and using this framework for observing a pattern, and finding explanations and relating this pattern to how other firms are doing.     

Loyalty,naivety and powerlessness among Norwegian retail bank customers

The quantitative analysis presented in this paper builds on a qualitative focus group study of mobility among bank customers. The main finding from the focus group study was that mobile bank customers had a reflective – often critical ? relation to their banks, while the immobile bank customers had an unreflective – often trusting – relation to their banks. The study also resulted in a typology identifying different bank customer orientations. In the present paper, this typology has been operationalized and modified for further quantitative estimation and investigation. Nine different bank orientations are distinguished, and the results indicate that at least two of three bank customers do not regularly monitor their banking terms and conditions. In other words, it is reasonable to believe that the ordinary bank customer is not acting as expected according to the theory of well‐functioning market mechanisms. Resourceful consumers, with high incomes and education levels, tend to be more financially oriented than others. When people with meagre financial resources tend to end up in the more unfavourable banks, this is not solely a result of the banks’ own discrimination of the poor; it is also due to the fact that people with high incomes and education levels are more likely to monitor their banking conditions than people with low incomes, irrespective of whether or not they have bank loans. The quantitative material analysed was collected in February 2007 by computer‐assisted telephone interviews. One thousand randomly selected respondents answered the questions.     

Evaluating discounts as a dimension of customer behavior analysis

Today, increased competition between organizations has led them to seek a better understanding of customer behavior through identifying valuable customers. Customers’ expectations about the price and quality of products and services play an important role in their selection process. In online businesses, competition and price differences between suppliers is high, so discounts will attract different customers. As a result, discounts and the frequency and amount of purchases can lead to better understanding of customer behavior. Customer segmentation and analysis is essential for identifying groups of customers. Hence, this study uses a model based on RFM called RdFdMd, in which d is the level of discount used to analyze customer purchase behavior and the importance of discounts on customers’ purchasing behavior and organizational profitability. The CRISP-DM and k-mean algorithm were used for clustering. The results indicate that using the R_dF_dM_d model achieves better customer clustering and valuation, and discounts were identified as an important criterion for customer purchases.     

New Perspectives on Customer Relationships: How Relational Models Influence Customer Experience and How They Are Activated

Abstract

Much research has been conducted into the determinants of customer experience. However, these studies do not include relationship norms as a possible determinant of customer experience. Nevertheless, there are strong indications that the relationship norms used by a customer are an important factor in customer behavior and customer experience. The purpose of this paper is to investigate the influence of relational models on customer experience and to explain possible differences in presence of relational models. This paper describes the results of two studies. The first study focuses on the effects of relational models on customer experience. This first study shows that the type of relationship has a strong influence on customer experience in terms of consumption emotions, customer satisfaction, and recommendation intention. Knowing that differences in the presence of relational models have a strong influence on customer experience, a second study focuses on finding a possible explanation for the differences in the presence of relational models. We hypothesize that differences in the presence of relational models can be explained by how organizations approach their customers and how customers perceive the organization. Especially, the perceived organizational involvement and freedom of choice as perceived by the customer play an important role. The second study, therefore, focuses on the influence of perceived organizational involvement and freedom of choice on relational models. The study shows that organizational involvement and freedom of choice have a significant impact on the activation of relational models. The findings are interesting for organizations that want to improve customer experience.     

Cross-channel integration – is it valued by customers?

It has been common for retail companies to use multiple channels simultaneously. However, simultaneous use is only the first step in creating a customer-centric multichannel system that demands channel synergies rather than parallel retail formats. Therefore, the perceived integration of customer-related functions and processes between the channels of multichannel systems is analyzed with respect to its significance for customer loyalty and usage of a multichannel system. Drawing on a sample (n) of 981 customers, the results indicate that linkages between retail channels positively affect customer loyalty and verify the importance of establishing a well-integrated – ‘seamless’ as perceived by the customer – multichannel system.     

Customer Lifetime Value as the Basis of Customer Segmentation

SUMMARY

In this article, we examine current trends in customer life-time value and customer segmentation models and identify key issues for future research. CLV-based segmentation is a segmentation approach that groups customers into meaningful segments based upon customer lifetime value and (potentially) other factors. In the article, we discuss the extent to which CLV-based segmentation meets the criteria for effective segmentation. We also identify six areas for future research: (1) models and management of “micro-segments,” (2) using CLV-based segmentation to improve the efficiency of marketing programs, (3) the need for more dynamic CLV-based segmentation models, (4) applying CLV-based customer segmentation to new products and new customers, (5) challenges associated with implementing CLV-based segmentation, and (6) the need for new models that enable firms to segment customers by response to marketing activities and CLV at different points in the customer decision process.     

Receiving,Recording, and Responding to Customer Complaints: The Effects of Formalizing Customer Complaint Handling Policies in Retail Firms

ABSTRACT

Given the critical need for retail firms to provide high quality customer service and satisfaction, this article investigates the importance of formalizing customer complaint handling policies and procedures with regard to its relationship to the ways in which retail companies receive, record, and respond to customer complaints. A survey of 184 firms from the retail environment of a midsized community reveals that the existence of such formalized procedures is significantly associated with firm size, better channels of communication with customers, mechanisms of recording customer feedback, and better-trained employees, which have been shown to relate to higher firm performance.     

Jokes in the store and its effects on customer satisfaction

Abstract

This study assesses the impact of employee use of jokes embedded in face-to-face conversations with customers. Our main finding – derived from experiments in which employee use of jokes was manipulated – was that jokes reduced customer satisfaction. This reduction occurred regardless if jokes were related or unrelated to the employee’s overall message. Our results also indicate that the use of jokes had a negative impact on perceived message relevance, and that perceived relevance mediated the link between employee use of jokes and customer satisfaction. In addition, our results show that no joke usage vs. joke usage did not produce different emotional responses. This suggests that the impact of jokes on affect is attenuated when jokes are embedded in conversational content.     

Zone of tolerance for banks: a diagnostic model of service quality

Service quality has become an increasingly important factor for success and survival in the banking sector. Provision of high-quality service aids in meeting several requirements such as customer satisfaction and its consequent loyalty and market share, soliciting new customers, financial performance, and profitability (Cui, C.C., Lewis, B.R., & Park, W. (2003). Service quality measurement in the banking sector in South Korea. International Journal of Bank Marketing, 21(4), 191–201.). This paper presents the bank service quality measurement in its extended form. It deals with the concept of ‘zone of tolerance’ in judgments of service quality proposed by Zeithaml, Berry, and Parasuraman (1993, The nature and determinants of customer expectations of service. Journal of the Academy of Marketing Science, 21(1), 1–12.). The ‘zone of tolerance’ is recognized in the service quality literature as representing a range of expectations and an area of acceptable outcomes in service interactions. The present study describes the zone of tolerance for young customers’ service expectations and determines the customer satisfaction level for banks. The study focusses only on the youth market to formulate long-term strategies because young customers tend to keep themselves up to date with latest technological developments. A conceptual model BANKZOT is presented in this study, and the results demonstrate that evaluation of services can be scaled according to different types of expectations – ‘desired' and ‘adequate’ – and that customers use these two types of expectations as a comparison standard in evaluating bank services. The findings reveal that young customers have a narrow zone of tolerance with regard to the services provided by the banks. The results with respect to gap analysis reveal that there was a shortfall in the service quality provided by the banks in the sample, with the largest gap being found in tangibles and empathy of service quality dimensions. The results of exploratory factor analysis reveal that the SERVQUAL model is found to be uni-dimensional in this study. The results, managerial implications, and future research implications are discussed in detail.     

Approaches to the Measurement and Management of Customer Value

SUMMARY

Determining and managing customer lifetime value is one of the most important strategic objectives of companies today. This paper critically examines some of the most popular approaches traditionally used to measure the value of customers in a company's portfolio. The methods reviewed include RFM and total revenue approaches to differentiating the value of customers. Although these methods have relative advantages, they have serious drawbacks that limit the ability of managers to accurately assess customer value. An alternative model for the measurement and management of customer value is proposed.     

Exploring the drivers of customer engagement behaviours in social network brand communities: towards a customer-learning model

Customer learning is regarded as a process that alters either individual cognition or the outcomes of socialisation. Understanding how the learning process works enables a brand firm to identify a customer’s latent needs. Prior studies have primarily focused on effectively positioning brand knowledge in the minds of customers, but that linear learning process does not apply to the interactive and proactive social media setting. Based on the uses and gratifications perspective, this study proposes a customer-learning model and analyses 373 online questionnaires using partial least squares structural equation modelling. The empirical results confirm that learning motivation and collaborative learning are two core components of customer learning that have positive influences on satisfaction, which in turn has a positive influence on customer engagement behaviours (CEBs) and loyalty. In addition, learning motivation is the driver of collaborative learning. Finally, CEBs also have a positive influence on loyalty. This study also concludes that the social network brand community is an informative customer-learning platform that is characterised by interactivity, collaborative learning and co-creation. Theoretical and managerial implications are also discussed.