The impact of customer-specific marketing expenses on customer retention and customer profitability
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The impact of customer-specific marketing expenses on customer retention and customer profitability Sander van Triest & Maurice J. G. Bun & Erik M. van Raaij & Maarten J. A. Vernooij
Published online: 30 September 2008 # The Author(s) 2008. This article published with open access at Springerlink.com
Abstract We study the effects of customer-specific marketing expenses on customer retention and customer profitability in a business-to-business setting. Using data from a company providing hygiene services, we look at the impact of a hitherto unstudied type of expense targeted at individual customer relationships: the offering of free equipment to customers. The data allow tracking the activities performed in more than 4,500 customer relationships over a period of 4 years. Retention rates are higher for customers targeted with free equipment, but this effect results from an interaction with customer size. First-order dynamic panel data analyses show that the impact of targeted marketing expenses on customer dollar profit is positive for large customers, but there is no effect for smaller customers. Thus, targeted marketing expenses seem to be a tool for relationship maintenance rather than customer development: they help in retaining large customers that generate more profit, but they do not seem to work in developing new customers into larger, more profitable ones. Keywords Customer profitability . Customer-specific marketing expenses . Panel data
S. van Triest (*) Amsterdam Business School, University of Amsterdam, Room E2.77, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands e-mail: [email protected] M. J. G. Bun University of Amsterdam, Room E3.10, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands e-mail: [email protected] E. M. van Raaij Rotterdam School of Management, Erasmus University, Room T10–40, Burg. Oudlaan 50, 3062 PA Rotterdam, The Netherlands e-mail: [email protected] M. J. A. Vernooij Nyenrode Business University, Straatweg 25, 3621 BG Breukelen, The Netherlands e-mail: [email protected]
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Market Lett (2009) 20:125–138
The traditional divide between marketing and finance is disappearing. Increasingly, marketing is made financially accountable, customer profitability has become a key marketing metric, and academic research on customer equity, customer (lifetime) value, and return on marketing is burgeoning (Blattberg and Deighton 1996; Rust et al. 2004b; Berger et al. 2006; Gupta et al. 2006). The financial analysis of marketing actions is shifting from the level of the customer segment to the level of the individual customer relationship. A core capability in a customer-level marketing strategy is to be able to target the right customer with the right marketing actions, such that the costs to serve a customer are in line with revenues from that customer, and profitability is enhanced (Kumar and Petersen 2005). Previous studies have investigated the profitability impact of various marketing decisions, such as frequency and method of contacting customers, differential pricing of services,
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