Choice Models and Customer Relationship Management
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Choice Models and Customer Relationship Management WAGNER KAMAKURA∗ CARL F. MELA∗ Duke University
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ASIM ANSARI Columbia University ANAND BODAPATI University of California, Los Angeles PETE FADER University of Pennsylvania RAGHURAM IYENGAR Columbia University PRASAD NAIK University of California, Davis SCOTT NESLIN Dartmouth College BAOHONG SUN Carnegie Mellon University PETER C. VERHOEF Erasmus University Rotterdam MICHEL WEDEL University of Michigan RON WILCOX University of Virginia
Abstract Customer relationship management (CRM) typically involves tracking individual customer behavior over time, and using this knowledge to configure solutions precisely tailored to the customers’ and vendors’ needs. In the context of choice, this implies designing longitudinal models of choice over the breadth of the firm’s products and using them prescriptively to increase the revenues from customers over their lifecycle. Several factors have recently contributed to the rise in the use of CRM in the marketplace: • A shift in focus in many organizations, towards increasing the share of requirements among their current customers rather than fighting for new customers. ∗ Co-Chairs.
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• An explosion in data acquired about customers, through the integration of internal databases and acquisition of external syndicated data. • Computing power is increasing exponentially. • Software and tools are being developed to exploit these data and computers, bringing the analytical tools to the decision maker, rather than restricting their access to analysts. In spite of this growth in marketing practice, CRM research in academia remains nascent. This paper provides a framework for CRM research and describes recent advances as well as key research opportunities. See http://faculty.fuqua.duke.edu/∼mela for a more complete version of this paper. Keywords: customer relationship management, direct marketing
Introduction What is CRM? Analytical customer relationship management (CRM) is the process of collecting and analyzing a firm’s information regarding customer interactions in order to enhance the customers’ values to the firm. Firms exploit such information by designing strategies uniquely targeted to consumer needs. This process enhances loyalty and increases switching costs, as information on consumer preferences affords an enduring competitive advantage. By integrating various data (e.g. across purchases, operations, service logs, etc.), choice researchers can obtain a more complete view of customer behavior. These developments cut across industries, including banking, telephony, Internet, and other areas that have received limited attention in the marketing literature. In addition, each industry likely has unique challenges of its own. We differentiate between analytical CRM, which is the focus of this paper, and behavioral CRM. Analytical CRM involves using firms’ data on its customers to design longitudinal models of choice over the breadth of the firm’s products and using them prescriptively to increa
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