Customer acquisition and retention are not independent processes. However, because of data limitations, customer management decisions are frequently based only on an analysis of acquired customers. This analysis shows that these decisions can be biased and misleading. The author presents a modeling approach that estimates the length of a customer's lifetime and adjusts for this bias. Using the model, the author shows the financial impact of not accounting for the effect of acquisition on customer retention.
Get full access to this article
View all access options for this article.
References
1.
BlattbergRobert C., and DeightonJohn (1996), “Manage Marketing by the Customer Equity Test,”Harvard Business Review, 74 (July/August), 136–44.
2.
BloomDavid E., and KillingsworthMark R. (1985), “Correction for Truncation Bias Caused by a Latent Truncation Variable,”Journal of Econometrics, 27 (January), 131–35.
3.
BoltonRuth N. (1998), “A Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Satisfaction,”Marketing Science, 17 (1), 45–47.
4.
FisherFranklin M. (1966), The Identification Problem in Econometrics.New York: McGraw-Hill.
5.
GreeneWilliam H. (1993), Econometric Analysis.New York: MacMillan Publishing Company.
6.
HansotiaBehram, and WangPaul (1997), “Analytical Challenges in Customer Acquisition,”Journal of Direct Marketing, 11 (Spring), 7–19.
7.
HeckmanJ. (1979), “Sample Selection Bias as a Specification Error,”Econometrica, 47 (January), 153–61.
8.
KamakuraWagner, and RussellGary J. (1989), “A Probabilistic Choice Model for Market Segmentation and Elasticity Structure,”Journal of Marketing Research, 26 (November), 379–90.
9.
MaddalaG. S. (1983), Limited Dependent and Qualitative Variables in Econometrics.New York: Cambridge University Press.
10.
SchmittleinDavid, and HelsenKristiaan (1993), “Handling Left Truncated Durations in Marketing with an Application to Panel Drop Out,” working paper, The Wharton School, University of Pennsylvania.
11.
SchmittleinDavid, and PetersonRobert (1994), “Customer Base Analysis: An Industrial Purchase Process Application,”Marketing Science, 13 (Winter), 41–67.
