Preface

Companies invest millions of dollars in Customer Relationship Management (CRM) systems and strategies. The primary objectives of these systems are to (a) acquire profitable customers, (b) retain profitable customers, (c) prevent profitable customers from migrating to competition, and (d) winning back ‘lost’ profitable customers. These four objectives collectively lead to increasing the profitability of an organization. While most firms recognize the benefits of establishing CRM systems and strategies, not all firms have been successful in their CRM implementations. So, why did they fail?

Traditional marketing theory and practice have always recommended that a company focus on expanding the customer base will lead to increased profitability. But, what about retaining the customers? Additionally, what about preventing customers from churning and winning back ‘lost’ customers? This book, at its core, explores these topics that are an integral part of the customer management process. Information and understanding these topics will contribute towards an enhanced financial performance of companies. Companies such as IBM, Zappos, Continental Airlines, Henkel, and Hewlett-Packard have understood the importance and relevance of all these four customer management topics as they apply to their organizations, thereby becoming leaders in their respective domains through the implementation of CRM programs. In order to understand the managerial relevance of these four customer management topics and successfully implement CRM systems, it is important to understand the engines that drive these systems – the quantitative models.

This book focuses on the quantitative and modeling aspects of customer management strategies that lead to future firm profitability. The book stresses on developing an understanding of the statistical models used in CRM applications as the guiding concept for profitable customer management. To understand and explore the functioning of models used in CRM applications, this book traces the management strategies throughout a customer's tenure with a firm. Specifically, the book will review five sets of models that will facilitate effective customer management strategy development and CRM implementation. They are:

1. Models for customer acquisition. A customer's tenure with a firm starts with his/her acquisition by the firm. Here, the firm's decisions include identifying the right customers to acquire, forecasting the number of new customers, and the response of promotional campaigns, among others.
2. Models for customer retention. During the customer's tenure with the firm, the firm would be interested in retaining this customer for a longer period of time. This calls for investigating the role of trust and commitment with the firm, metrics for customer satisfaction, and the role of loyalty and reward programs, among others. Additionally, decisions on who will buy, what the customers will buy, when they will buy, and how much they will buy are explored through a discussion of the various models used in the literature.
3. Integrated models for acquiring and retaining customers. This set of models focuses on the small subset of the literature that has linked customer acquisition and retention. Establishing this link is crucial as it has important implications for customer profitability and optimal allocation of marketing resources between acquisition and retention.
4. Models for customer churn. In modeling customer attrition, some of the important decisions made by a firm include identifying whether the customer will churn or not, and if so what will be the probability of the customer churning, and when.
5. Models for customer win-back. Customer win-back refers to ‘reacquiring’ customers after the customer has terminated the relationship with the firm. Here, it is important to understand what CRM models and strategies can do to bring the customer back to the firm in both B2C and B2B settings.

The above-mentioned five sets of models – customer acquisition, customer retention, customer acquisition and retention, customer churn, and customer win-back – form the core of this book. Apart from covering these models, the book will also investigate the need for such CRM models, review the implementation of these models, and look into the future of these models.

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