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Measuring customer profitability in complex environments: an interdisciplinary contingency framework

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Abstract

Customer profitability measurement is an important element in customer relationship management and a lever for enhanced marketing accountability. Two distinct measurement approaches have emerged in the marketing literature: Customer Lifetime Value (CLV) and Customer Profitability Analysis (CPA). Myriad models have been demonstrated within these two approaches across industries. However, limited efforts have been made to explain when sophisticated CLV or CPA models will be most useful. This paper explores the advantages and limitations of sophisticated CLV and CPA models and proposes that the degree of sophistication deployed when implementing customer profitability measurement models is determined by the type of complexity encountered in firms’ customer environments. This gives rise to a contingency framework for customer profitability measurement model selection and five research propositions. Additionally, the framework provides design and implementation guidance for managers seeking to implement customer profitability measurement models for resource allocation purposes.

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Authors and Affiliations

  1. Department of Accounting & Auditing, Copenhagen Business School, Frederiksberg, Denmark

    Morten Holm & Carsten Rohde

  2. Center for Excellence in Brand & Customer Management, J. Mack Robinson College of Business, Georgia State University, 35 Broad Street, Suite 400, Atlanta, GA, 30303, USA

    V. Kumar

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  1. Morten Holm
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Correspondence to V. Kumar.

Additional information

We thank several professors from the accounting, finance and marketing departments of Copenhagen Business School and Georgia State University, and the Marketing Science Institute for providing feedback on the earlier versions of this manuscript. The participants on the 32nd INFORMS Marketing Science Conference in Cologne in June 2010 also provided valuable feedback on our work. We thank Renu for copyediting the manuscript. We thank the editor and the three anonymous reviewers for their guidance in revising this manuscript.

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Holm, M., Kumar, V. & Rohde, C. Measuring customer profitability in complex environments: an interdisciplinary contingency framework. J. of the Acad. Mark. Sci. 40, 387–401 (2012). https://doi.org/10.1007/s11747-011-0263-4

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