The Effect of Service Quality on Customer Lifetime Value

• Activity Number: 192
• Type: Contributed
• Date/Time: Monday, August 5, 2013 : 10:30 AM to 12:20 PM
• Sponsor: Section on Statistics in Marketing
• Author(s): Michael Braun*+ and David Schweidel and Eli Stein
• Companies: MIT Sloan School of Management and Goizueta Business School, Emory University and Harvard University
• Keywords: Marketing ; Bayesian ; Customer Analytics

Abstract

We present a model of expected customer lifetime value (ECLV) for noncontractual settings that incorporates measures of service quality and customer experience. A customer who receives a level of service that is less that what was ordered is more likely to churn, but offering higher service quality does not reduce churn by as much. More crucially, the expected change in ECLV depends on observed recency and frequency. For customers with high or low probabilities of being ``alive,'' information about serivce quality has little effect on posterior estimates of ECLV. These insights can help managers to measure the return on investment in service quality more accurately, and to target marketing resources appropriately. The model itself is easy to implement, and does not require simulation-based estimation methods