Customer Acquisition and Customer Retention in a Monopolistically Competitive Industry

21 Pages Posted: 29 Jan 2014

See all articles by Gerasimos Lianos

Gerasimos Lianos

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Igor Sloev

National Research University Higher School of Economics

Date Written: December 3, 2013

Abstract

We study the optimal customer-acquisition and customer-retention decisions over an infinite planning horizon of the representative firm in a monopolistically competitive industry. Both the long-term and short-term equilibria of the industry are characterized by a constant optimal retention rate. We show that customer churn rate and the share of acquisition expenditures in the total marketing expenditures decrease with firm size. Stronger competition leads to lower firm's total acquisition and retention expenditures, but it does not change the per-capita levels. Larger market size increases the firm's total acquisition and retention expenditures, but it leaves the per-capita retention levels unchanged.

Keywords: market dynamics, customer acquisition, customer retention, customer lifetime value

JEL Classification: M20, M30, M31

Suggested Citation

Lianos, Gerasimos and Sloev, Igor, Customer Acquisition and Customer Retention in a Monopolistically Competitive Industry (December 3, 2013). Available at SSRN: https://ssrn.com/abstract=2386586 or http://dx.doi.org/10.2139/ssrn.2386586

Gerasimos Lianos

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Chengdu, 610074
China

Igor Sloev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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