Marketing Letters

, Volume 26, Issue 4, pp 579–592 | Cite as

Implications of minimum contract durations on customer retention

Article

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.

Keywords

Customer tenure Contract options Telecommunication 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Kuehne Logistics UniversityHamburgGermany
  2. 2.Munich School of ManagementLudwig-Maximilians-UniversityMunichGermany

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