The Role of Channel Quality in Customer Equity Management

10 Pages Posted: 3 Jun 2007 Last revised: 5 Dec 2012

See all articles by Weimin Dong

Weimin Dong

Boston University - Questrom School of Business

Scott D. Swain

Clemson University

Paul D. Berger

Bentley University - Department of Marketing

Abstract

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, 1970), 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.

Keywords: customer lifetime value, customer equity, customer relationship management, acquisition, retention, channels, allocation

JEL Classification: M31, M10, C51, C52, C61

Suggested Citation

Dong, Weimin and Swain, Scott D. and Berger, Paul D., The Role of Channel Quality in Customer Equity Management. Journal of Business Research, Vol. 60, pp. 1243-1252, December 2007. Available at SSRN: https://ssrn.com/abstract=990107

Weimin Dong

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Scott D. Swain (Contact Author)

Clemson University ( email )

Clemson, SC 29631
United States

Paul D. Berger

Bentley University - Department of Marketing ( email )

175 Forest Street
Waltham, MA 02145
United States

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