Abstract
A basic tenet of relationship marketing is that firms benefit more from maintaining long-term customers; however, it is not clear whether the need for maintaining personal banking services of long-term and active customers (e.g., current savings accounts) is in the best interest of bank profitability (Reinartz and Kumar, 2000). The primary objective of this study is to provide a rigorous and differentiated empirical analysis of the lifetime and active-profitability relationship in a non-contractual service context. In this study, the authors find that, in personal bank service scenarios, the most valuable customers are those who are less active and have high account balances. Moreover, the correlation between customer activity, lifetime length, and profitability is not significantly positive; long customer lifetimes do not necessarily increase revenue or decrease the cost of customer service. Furthermore, a large number of transactions do not necessarily indicate a high lifetime value, and not all active customers contribute to large bank profits. The authors develop plausible explanations for findings that go against available evidence in the literature, which can help managers focus their efforts on more profitable customers. The authors also draw several marketing implications and acknowledge the limitations of this study. Keywords: CLV, RFM, NBD, Gamma-Gamma, Exponential Smoothing
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have