It’s not sensible when companies blindly focus on customer loyalty as a means of customer profitability. Several researchers claim that it’s more feasible to invest in customer retention than customer acquisition, and that loyal customers are more profitable than other customers. However, Reinartz and Kumar (2002) among others dispute this strong relationship and find no evidence to suggest that loyal customers are cheaper to serve, less price sensitive or able to attract new customers to the business through advocacy. Companies even risk making unprofitable customers loyal, why the link between loyalty and profitability should be handled simultaneously. The scope of the master’s thesis is the link between customer loyalty and customer profitability on a theoretical basis, with the aim to develop a modified loyalty matrix that is able to measure on both parameters. The authors are able to identify Stig Jørgensen & Partners (SJ&P) loyalty matrix as suitable, as it allows for measuring and modeling of customer loyalty on a segmentation basis. Also, the SJ&P matrix takes both brand loyal behaviour and brand loyal attitudes into consideration for a more accurate measure of loyalty. Customer lifetime value (CLV) is preferred as a measure of profitability, since the matrix is forward-looking and it’s possible to determine the value of a single customer or a customer segment. Since customer equity (CE) models measure the value of the customer portfolio on an aggregated basis, these models are not applicable when the goal is to be able to differentiate between profitable and unprofitable customers. Using the modified loyalty matrix allows for the chief customer officer (CCO) to make strategic decisions for maximizing of customer equity. The modified loyalty matrix is constructed in a logic manner, visually as functionally. CLV models are considered as a complex tool for customer valuation, why a framework is developed to help the CCO to overcome the task of implementing and understanding the use and pitfalls of CLV. Furthermore a framework of different approaches for CLV measuring is unfolded, with the purpose of helping the CCO to choose the most suitable model based on the context of the company. Especially of interest is whether transaction and customer data are available or accessible and if it’s a contractual setting or not. Strengths and weaknesses of each model are identified and the traits of the models are compared.
|Educations||MSc in Economics and Marketing, (Graduate Programme) Final Thesis|
|Number of pages||142|