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Article: Incorporating satisfaction into customer value analysis: Optimal investment in lifetime value

TitleIncorporating satisfaction into customer value analysis: Optimal investment in lifetime value
Authors
KeywordsCustomer satisfaction
Customer value analysis
Hidden Markov model
Nonstationarity
Stochastic processes
Issue Date2006
PublisherINFORMS. The Journal's web site is located at http://bear.cba.ufl.edu/centers/MKS/index.asp
Citation
Marketing Science, 2006, v. 25 n. 3, p. 260-277 How to Cite?
AbstractWe extend the Schmittlein et al. model (1987) of customer lifetime value to include satisfaction. Customer purchases are modeled as Poisson events, and their rates of occurrence depend on the satisfaction of the most recent purchase encounter. Customers purchase at a higher rate when they are satisfied than when they are dissatisfied. A closed-form formula is derived for predicting total expected dollar spending from a customer base over a time period (0, T]. This formula reveals that approximating the mixture arrival processes by a single aggregate Poisson process can systematically underestimate the total number of purchases and revenue. Interestingly, the total revenue is increasing and convex in satisfaction. If the cost is sufficiently convex, our model reveals that the aggregate model leads to an overinvestment in customer satisfaction. The model is further extended to include three other benefits of customer satisfaction: (1) satisfied customers are likely to spend more per trip on average than dissatisfied customers, (2) satisfied customers are less likely to leave the customer base than dissatisfied customers, and (3) previously satisfied customers can be more (or less) likely to be satisfied in the current visit than previously dissatisfied customers. We show that all the main results carry through to these general settings. © 2006 INFORMS.
Persistent Identifierhttp://hdl.handle.net/10722/157729
ISSN
2015 Impact Factor: 1.647
2015 SCImago Journal Rankings: 4.340
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorHo, THen_HK
dc.contributor.authorPark, YHen_HK
dc.contributor.authorZhou, YPen_HK
dc.date.accessioned2012-08-08T08:55:12Z-
dc.date.available2012-08-08T08:55:12Z-
dc.date.issued2006en_HK
dc.identifier.citationMarketing Science, 2006, v. 25 n. 3, p. 260-277en_HK
dc.identifier.issn0732-2399en_HK
dc.identifier.urihttp://hdl.handle.net/10722/157729-
dc.description.abstractWe extend the Schmittlein et al. model (1987) of customer lifetime value to include satisfaction. Customer purchases are modeled as Poisson events, and their rates of occurrence depend on the satisfaction of the most recent purchase encounter. Customers purchase at a higher rate when they are satisfied than when they are dissatisfied. A closed-form formula is derived for predicting total expected dollar spending from a customer base over a time period (0, T]. This formula reveals that approximating the mixture arrival processes by a single aggregate Poisson process can systematically underestimate the total number of purchases and revenue. Interestingly, the total revenue is increasing and convex in satisfaction. If the cost is sufficiently convex, our model reveals that the aggregate model leads to an overinvestment in customer satisfaction. The model is further extended to include three other benefits of customer satisfaction: (1) satisfied customers are likely to spend more per trip on average than dissatisfied customers, (2) satisfied customers are less likely to leave the customer base than dissatisfied customers, and (3) previously satisfied customers can be more (or less) likely to be satisfied in the current visit than previously dissatisfied customers. We show that all the main results carry through to these general settings. © 2006 INFORMS.en_HK
dc.languageengen_US
dc.publisherINFORMS. The Journal's web site is located at http://bear.cba.ufl.edu/centers/MKS/index.aspen_HK
dc.relation.ispartofMarketing Scienceen_HK
dc.subjectCustomer satisfactionen_HK
dc.subjectCustomer value analysisen_HK
dc.subjectHidden Markov modelen_HK
dc.subjectNonstationarityen_HK
dc.subjectStochastic processesen_HK
dc.titleIncorporating satisfaction into customer value analysis: Optimal investment in lifetime valueen_HK
dc.typeArticleen_HK
dc.identifier.emailZhou, YP: yongpin@hku.hken_HK
dc.identifier.authorityZhou, YP=rp01614en_HK
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1287/mksc.1050.0158en_HK
dc.identifier.scopuseid_2-s2.0-33746017358en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-33746017358&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume25en_HK
dc.identifier.issue3en_HK
dc.identifier.spage260en_HK
dc.identifier.epage277en_HK
dc.identifier.eissn1526-548X-
dc.identifier.isiWOS:000238855700006-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridHo, TH=7402460571en_HK
dc.identifier.scopusauthoridPark, YH=16433237000en_HK
dc.identifier.scopusauthoridZhou, YP=9037956000en_HK

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