Abstract
Customer retention is a major driver of customer lifetime value and is thus a key performance metric in marketing management. Consequently, companies try to retain customers by offering contracts with minimum contract durations (MCD). Using behavioral, psychometric, and advertising data for a large sample of DSL customers, the authors study the impact of minimum contract durations on actual customer churn behavior. The analyses demonstrate that subscriptions with minimum contract durations do indeed help companies to successfully retain customers. The effect is impaired though, as companies typically (must) provide incentives to convince customers to commit to those contracts. We find that incentives attract customers that either cannot or should not be retained and hence require companies to carefully apply both MCD and incentives.
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Notes
To check for possible changes in the respondents’ perception, we repeated the survey exactly 1 year later. Because the responses reveal no significant differences for the relevant measures, we treat the measures as time-invariant in our analyses.
As the hazard of defection increases with time (see also shape parameter p), the Weibull distribution provided superior results compared to other distributions (e.g., gamma, exponential).
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Becker, J.U., Spann, M. & Schulze, T. Implications of minimum contract durations on customer retention. Mark Lett 26, 579–592 (2015). https://doi.org/10.1007/s11002-014-9293-2
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DOI: https://doi.org/10.1007/s11002-014-9293-2