Measuring customer profitability in complex environments: an interdisciplinary contingency framework

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.