Abstract
Following the Blattberg and Deighton (BD) model, we incorporate market share growth to explore links between acquisition and retention. We then devise a method for nonlinear programming using a spreadsheet to balance the objectives of market share growth in the short term and customer equity in the long term. The aim of this approach is to determine the optimal spending allocation for customer acquisition and retention and, by applying this allocation to the numerical example used in the original BD model, to balance these objectives. We demonstrate that the differential unit cost of marginal effects, ceiling rate, efficiency, and allocation of spending on acquisition and retention to achieve market share growth can maximize customer equity. We also develop a criterion to help firms decide where to place spending emphasis, that is, on retaining existing customers or on gaining new ones, while keeping the objectives of market share growth and customer equity firmly in mind.
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Notes
We express some opinions on the issue of market growth in Appendix 1, which is available on request from the author.
For the details and a discussion of the optimization process, please refer to Appendix 2, which is available on request from the author.
For details of the impact of the ceiling rate (CR) and efficiency (K) of acquisition and retention on the marginal cost, please refer to Appendix 3, which is available on request from the author.
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Tsao, HY. Budget allocation for customer acquisition and retention while balancing market share growth and customer equity. Mark Lett 24, 1–11 (2013). https://doi.org/10.1007/s11002-012-9217-y
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DOI: https://doi.org/10.1007/s11002-012-9217-y