TY - JOUR
T1 - Customer lifetime value
T2 - Stochastic optimization approach
AU - Ching, W. K.
AU - Ng, M. K.
AU - Wong, K. K.
AU - Altman, E.
N1 - Acknowledgements—Research supported in part by RGC Grant Nos HKU 7126/02P, HKU 7130/02P, HKU 7046/03P, and HKU CRCG Grant Nos 10203408, 10203501, 10203907, 10205105, 10204436.
Publisher Copyright:
© 2004 Operational Research Society Ltd. All rights reserved.
PY - 2004/8/1
Y1 - 2004/8/1
N2 - Since the early 1980s, the concept of relationship marketing has been becoming important in general marketing, especially in the area of direct and interactive marketing. The core of relationship marketing is the maintenance of longterm relationships with the customers. However, the relationship marketing is costly and therefore, the determination of the customer lifetime value (CLV) is an important element in making strategic decisions in both advertising and promotion. In this paper, we propose a stochastic dynamic programming model with a Markov chain for the optimization of CLV. Both cases of infinite horizon and finite horizon are discussed. The model is then applied to practical data of a computer service company.
AB - Since the early 1980s, the concept of relationship marketing has been becoming important in general marketing, especially in the area of direct and interactive marketing. The core of relationship marketing is the maintenance of longterm relationships with the customers. However, the relationship marketing is costly and therefore, the determination of the customer lifetime value (CLV) is an important element in making strategic decisions in both advertising and promotion. In this paper, we propose a stochastic dynamic programming model with a Markov chain for the optimization of CLV. Both cases of infinite horizon and finite horizon are discussed. The model is then applied to practical data of a computer service company.
KW - Customer lifetime value
KW - Markov process
KW - Relationship marketing
KW - Stochastic dynamic programming
UR - http://www.scopus.com/inward/record.url?scp=3242756531&partnerID=8YFLogxK
U2 - 10.1057/palgrave.jors.2601755
DO - 10.1057/palgrave.jors.2601755
M3 - Journal article
AN - SCOPUS:3242756531
SN - 0160-5682
VL - 55
SP - 860
EP - 868
JO - Journal of the Operational Research Society
JF - Journal of the Operational Research Society
IS - 8
ER -