Customer portfolio management in e‐commerce: an analytical model for optimization

Abstract

Purpose – The purpose of this paper is to present a model that retailers engaged in e‐commerce (e‐tailers) can use for determining the optimal mix of customer segments within a customer portfolio from an integrated risk and return perspective.Design/methodology/approach – Portfolio Selection Theory of Markowitz is applied to find the optimal composition of customer portfolios. The model is developed and discussed for two customer segments (relationship‐ and transaction‐oriented customers) and exemplarily applied to a data set of an e‐tailer.Findings – Portfolio Selection Theory of Markowitz is well‐suited and promising for determining an optimal customer portfolio from a risk‐return perspective. However, since customers vary from financial assets in several aspects, the results of the model have to be interpreted conscientiously and the resulting action options have to be interpreted within the context of customer relationship management (CRM).Research limitations/implications – The model proposes to carr...