This 40 hours course presents modern concepts of “relationship marketing” in such field of Marketing as Customer Relationship Management. Traditional “transactional marketing” is oriented on mass marketing and promotions to make sales and focused on short-term communications. In contrast, “relationship marketing” uses personalized marketing and builds long-term relationships with firm’s customers to support sustainable business development. The course gives a particular emphasis to the usage of the customer lifetime value (CLV) concept, which stresses the importance of both acquisition of new customers and the retention of existing customers. An effective customer retention policy leads to building long-term relations, increases customer loyalty, lowers customers churn rate, and finally provides an increase in long-run firm’s value. The course discusses the main principles involved in measuring and managing customer value and its relation to a firm value. Students will learn how to use the CLV concept for measuring the efficiency of marketing actions, and for evaluation of the long-run profitability of different customer groups, how effectively allocate limited marketing resources between customer acquisition and customer retention. The main topics covered in the course include customer equity and long-term firm valuation, individual customer lifetime value, customer loyalty, customer acquisition and customer retention.
By the end of this course, students should be able to:
- discuss the main concepts related to customer equity management;
- know main metrics for measuring long-term customer profitability;
- understand a concept of customer lifetime value, its relation to the customers base equity and firm’s value;
- use theoretical models to estimate customer equity and its role in business sustainability;
- critically discuss these models and identify their limitations;
- discuss the relationship of marketing strategy on firms’ short- and long-run performance;
- Understand the role of effective customer equity management for sustainable business development
Topic 1. Introduction: customer equity approach.
Topic 2. Maximizing Profitability: Value of Loyalty Programs for long-term relations with customers.
Topic 3. Customer Selection Metrics and Customer Lifetime Value Models.
Topic 4. Managing Customers Profitably.
Topic 5. Two-tier Loyalty Programs: Managing loyalty and profitability simultaneously.
Topic 6. Customer attrition and customer acquisition: impact on business sustainability.
Topic 7. Optimal Allocation of Resources across Marketing and Communication Strategies.
Topic 8. Selected applications: pitching the right product to the right customer at the right time, managing multichannel shoppers, linking investments in branding to customer profitability
This course has no prerequisites. However, some basic mathematics, algebra, and graphing will be used.
Written summaries and home assignments 25%
Mid-term exam 25%
Presentations and seminar participation 25%
Final exam 25%
Written summaries and home assignments: there will be small written assignments every week to test the understanding and check the progress of the students; some assignments might be in the form of summarizing the key points from the core readings.
Midterm exam: multiple choice and open questions, which may be numerical or conceptual.
Student’s presentation. Each student should choose one academic paper and prepare a 12-15 slides presentation, and write a short summary of the paper. The presentation should explain the following points: What is the authors’ research question, why is it interesting? What answers do the authors provide, what are the authors’ main findings? How do authors show that this answer is correct, what method did authors use?
Final Exam: Exercises and questions for the final exam will be based on (i) material discussed during lectures/seminars, (ii) obligatory for reading papers, (iii) materials of students’ presentations.
Main textbooks: Kumar, V., 2008, Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty, Pearson Education (US).
Additional text books:
Blattberg, Robert C., Kim, Byung-Do, Neslin, Scott A., Analyzing and Managing Customers Series: International Series in Quantitative Marketing, Vol. 18, 2008, XXIV, 872 p.
Customer Equity: Measurement, Management and Research Opportunities, Foundations and Trends in Marketing, Vol. 1, No 1 (2007) 1–95
Papers for required reading
(1) F. F. Reichheld and W. E. Sasser Jr., “Zero Defections: quality comes to services,” Harvard Business Review, 68(5) 1990: 105–11.
(2) Kumar, V., Petersen, J. A., & Leone, R. P. (2007). How valuable is word of mouth? Harvard business review, 85(10), 139.
(3) Thomas, J. S., Reinartz, W., & Kumar, V. (2003). Getting the most out of all your customers. Harvard Business Review, 82(7-8), 116-23.
(4) Gupta, S., & Mela, C. F. (2008). What is a free customer worth? Armchair calculations of nonpaying customers' value can lead to flawed strategies. Harvard Business Review, 86(11), 102-9.
(5) Rust, R. T., Zeithaml, V. A., & Lemon, K. N. (2004). Customer-centered brand management. Harvard business review, 82(9), 110-120.
(6) Schoder, D. (2007). The flaw in customer lifetime value. Harvard business review, 85(12), 26-26.
(7) W. W. Reinartz and V. Kumar, “The Mismanagement of Customer Loyalty,” Harvard Business Review 80(7) 2002: 86.
(8) Robert C. Blattberg and John Deighton, “Manage Marketing by the Customer Equity Test,” Harvard Business Review 74(4) 1996: 136–144.
(9) V. Kumar, R. Venkatesan, and W. J. Reinartz (2006), “Knowing What to Sell, When, and to Whom,” Harvard Business Review, March 2006: 131–137.
Papers for presentation:
(10) Fader, P. S., & Hardie, B. G. (2010). Customer-base valuation in a contractual setting: The perils of ignoring heterogeneity. Marketing Science, 29(1), 85-93.
(11) Kumar, V., Ramani, G., & Bohling, T. (2004). Customer lifetime value approaches and best practice applications. Journal of interactive marketing, 18(3), 60-72.
(12) Haenlein, M., Kaplan, A. M., & Schoder, D. (2006). Valuing the real option of abandoning un-profitable customers when calculating customer lifetime value. Journal of Marketing, 70(3), 5-20.
(13) Reinartz, W. J., & Kumar, V. (2000). On the profitability of long-life customers in a noncontractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64(4), 17-35.
(14) Venkatesan, R., & Kumar, V. (2004). A customer lifetime value framework for customer selection and resource allocation strategy. Journal of Marketing, 68(4), 106-125.
(15) Haenlein, M., & Kaplan, A. M. (2009). Unprofitable customers and their management. Business Horizons, 52(1), 89-97.
Further readings will be suggested during classes. Obligatory reading is up to 30 pages per week.
Last updated: 16 January 2023