Dynamic Customer Acquisition and Retention Management

• Autores: Gregory King, Xiuli Chao, Izak Duenyas
• Localización: Production and Operations Management, ISSN-e 1937-5956, Vol. 25, Nº. 4, 2016, 770 págs.
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • In consulting, finance, and other service industries, customers represent a revenue stream, and must be acquired and retained over time. In this paper, we study the resource allocation problem of a profit maximizing service firm that dynamically allocates its resources towards acquiring new clients and retaining unsatisfied existing ones. The interaction between acquisition and retention in our model is reflected in the cash constraint on total expected spending on acquisition and retention in each period. We formulate this problem as a dynamic program in which the firm makes decisions in both acquisition and retention after observing the current size of its customer base and receiving information about customers in danger of attrition, and we characterize the structure of the optimal acquisition and retention strategy. We show that when the firm's customer base size is relatively low, the firm should spend heavily on acquisition and try to retain every unhappy customer. However, as its customer base grows, the firm should gradually shift its emphasis from acquisition to retention, and it should also aim to strike a balance between acquisition and retention while spending its available resources. Finally, when the customer base is large enough, it may be optimal for the firm to begin spending less in both acquisition and retention. We also extend our analysis to situations where acquisition or retention success as a function of resources allocated is uncertain and show that the optimal acquisition and retention policy can be surprisingly complex. However, we develop an effective heuristic for that case. This paper aims to provide service managers some analytics principles and effective guidelines on resource allocation between these two significant activities based on their firm's customer base size.