Academic journal article Iranian Journal of Management Studies

An Empirical Analysis to Design Enhanced Customer Lifetime Value Based on Customer Loyalty: Evidences from Iranian Banking Sector

Academic journal article Iranian Journal of Management Studies

An Empirical Analysis to Design Enhanced Customer Lifetime Value Based on Customer Loyalty: Evidences from Iranian Banking Sector

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

The more a marketing paradigm evolves, the more long-term relationship with customers gains its importance. CRM, a recent marketing paradigm, pursues long-term relationships with profitable customers. It can be a starting point of relationship management to understand and measure the true value of customers, since marketing management as a whole is to be deployed toward the targeted customers and profitable customers, to foster customers' full profit potential. Corporate success depends on an organization's ability to build and maintain loyal and valued customer relationships. Therefore, it is essential to build refined strategies for customers based on their value (Kim et al., 2006). Companies are becoming increasingly aware of the many potential benefits provided by CRM. Some potential benefits of CRM are as follows: (1) Increased customer retention and loyalty, (2) higher customer profitability, (3) creation value for the customer, (4) customization of products and services, (5) lower process, higher quality products and services (Jutla, Craig, & Bodorik, 2001; Stone, Woodcock, & Wilson, 1996). When evaluating customer profitability, marketers are often reminded of the 80/20 rule (80% of the profits are produced by top 20% of profitable customers and 80% of the costs are produced by top 20% of unprofitable customers) (Duboff, 1992; Gloy, Akridge, & Preckel, 1997).

The core parts of CRM activities are understanding customers' profitability and retaining profitable customers (Hawkes, 2000). To cultivate the full profit potentials of customers, many companies already try to measure and use customer value in their management activities (Gloy, Akridge, & Preckel, 1997). Therefore, many firms are needed to assess their customers' value and build strategies to retain profitable customers.

Therefore, over the past decade, Customer Relationship Management (CRM) has become a leading strategy in highly competitive business environments. Companies increasingly derive revenue from the creation and enhancement of long-term relationships with their customers (Coussement & Van den Poel, 2008). This move towards a customer-centric approach to marketing, coupled with the increasing availability of customer-transaction data, has led to an interest in estimating and understanding Customer Lifetime Value (CLV). CLV is viewed as the present value of the future cash flows associated with a customer (Pfeifer et al., 2005). Knowing the CLV of individual customers enables the decision maker to improve the customer segmentation and marketing resource allocation efforts (Kim & Lee, 2007; Kumar et al., 2006) and this in turn will lead to higher retention rates and profits for the firm (Hawkes, 2000).

On the other hand, Satisfaction and loyalty of customers are important factors having effect on managerial thoughts in 1990's. Notably, to understand, satisfy and forecast needs of customers were considered most important competitive advantages for companies (Vilares & Coelho, 2003).

Nowadays, in competitive economy there is no warranty for business companies to survive. Loyal customers can be of great help to companies to survive and improve. Therefore, companies need to concentrate on loyalty of customers and enjoy customers' loyalty as a main strategy for future. Although many companies have accepted loyalty as a key strategy to survive, they do not seem to understand the meaning and to apply it effectively. Many researchers believe that loyalty antecedents are complex and dynamic, changing and evolving over time (Johnson et al., 2006). There are still a number of important gaps in understanding the loyalty and other relationship marketing constructs (Taylor et al., 2006).

This research aims at developing a new model for determining the position of customer loyalty and customer lifetime value in the new paradigm of marketing, namely relationship marketing. …

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