Reinartz (2005) Balancing Acquisition and Retention

Reinartz (2005) Balancing Acquisition and Retention -...

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Acquisition and Retention Resources / 63 Journal of Marketing Vol. 69 (January 2005), 63–79 Werner Reinartz, Jacquelyn S. Thomas, & V. Kumar Balancing Acquisition and Retention Resources to Maximize Customer Profitability In this research, the authors present a modeling framework for balancing resources between customer acquisition efforts and customer retention efforts. The key question that the framework addresses is, “What is the customer profitability maximizing balance?” In addition, they answer questions about how much marketing spending to allo- cate to customer acquisition and retention and how to distribute those allocations across communication channels. Werner J. Reinartz is Associate Professor of Marketing, INSEAD (e-mail: werner.reinartz@insead.edu). Jacquelyn S. Thomas is Associate Profes- sor of Integrated Marketing Communications, Northwestern University (e-mail: jakki@northwestern.edu). V. Kumar is ING Chair Professor and Executive Director, ING Center for Financial Services, School of Busi- ness, University of Connecticut (e-mail: vk@sba.uconn.edu). The authors thank the JM reviewers and the participants of the 2003 Marketing Sci- ence Conference for their valuable comments on a previous version of the article.They also thank the high-tech firm for providing access to the data, without which this study would not have been possible. All authors con- tributed equally. M easuring, managing, and maximizing customer profitability is not an easy task. It requires that in resource allocation decisions, both the benefits and the costs of marketing, sales, and customer interactions are considered. In this research, we conceptualize the market- ing resource allocation problem in terms of determining how much to spend on customer acquisition and customer retention and how those expenditures are allocated. Given this conceptualization, the fundamental marketing resource allocation question is, “What is the right balance of resources that optimizes customer profitability?” Prior research has examined parts of these issues, but to date, there has not been a comprehensive examination of marketing resource allocation that focuses on all three fol- lowing questions: How much? How? and What is the profit- optimizing balance? For example, Blattberg and Deighton (1996) address the question of how much to spend on cus- tomer acquisition and customer retention. However, they stop short of simultaneously considering acquisition and retention spending, which is critical to address the issue of balancing resources. Using Blattberg and Deighton’s (1996) framework, Berger and Nasr-Bechwati (2001) assume a budget amount and then suggest a model to address how that budget should be allocated between acquisition and retention. However, their model is not tested empirically. In contrast, in this research, we propose an integrated approach that sheds sta- tistical insight on this issue and thus goes beyond the deter- ministic approach that Berger and Nasr-Bechwati provide.
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Reinartz (2005) Balancing Acquisition and Retention -...

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