The Impact of Forward-Looking Metrics on Employee Decision-Making: The Case of Customer Lifetime Value

52 Pages Posted: 28 May 2016  

Pablo Casas-Arce

Arizona State University (ASU) - W.P. Carey School of Business

Francisco de Asis Martinez-Jerez

University of Notre Dame - Department of Accountancy

V. G. Narayanan

Harvard University - Accounting & Control Unit

Date Written: May 1, 2016

Abstract

This paper analyzes the effects of forward-looking metrics on employee decision-making. We use data from a bank that started providing branch managers with the customer lifetime value (CLV) — an estimate of the future value of the customer relationship — of mortgage applicants. The data allows us to gauge the effects of enriching the employees’ information set in an environment where explicit incentives and decision rights remained unchanged. On average, customer value increased 5 percent after the metric’s introduction. The metric’s availability resulted in a significant shift in attention toward more profitable client segments and some improvement in cross-selling. However, the use of CLV did not negatively impact pricing or default risk, as the literature predicts. Finally, branch managers with shorter tenure displayed a stronger response, consistent with information substituting for experience.

Keywords: Forward-looking metrics, customer lifetime value (CLV), employee decision-making; cross-selling, decision aids

JEL Classification: M40, M54, M31, M41

Suggested Citation

Casas-Arce, Pablo and Martinez-Jerez, Francisco de Asis and Narayanan, V. G., The Impact of Forward-Looking Metrics on Employee Decision-Making: The Case of Customer Lifetime Value (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2785561 or http://dx.doi.org/10.2139/ssrn.2785561

Pablo Casas-Arce

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Francisco de Asis Martinez-Jerez (Contact Author)

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

V. G. Narayanan

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6359 (Phone)
617-496-7363 (Fax)

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