Modelling a CRM Markov chain process using system dynamics

Abstract

Improvement in customer relationships within an organisation is a strategic target that commercial organisations try to achieve. Research has shown that 80% of the profits of most companies are generated from 20% of their loyal customers. The cost of achieving successful sales with new customers is also higher than that with existing customers. The capability to retain loyal customers and keep a close relationship with them is the key to surviving in the present one-to-one marketing environment. An excellent CRM system that has Online Analytical Processing (OLAP) capable of analysing the relationship level with the direct customers and downstream customers provides a definite marketing advantage in the customer share campaign. In this paper, a system dynamics model to analyse direct and downstream customer relationships is presented. The theory of the Markov chain model in computing customer lifetime value is applied in the model presented for customer supply chain decision support.