Customer retention management considering the long-term effects of the marketing campaign

Abstract

Retaining customers is crucial for most companies. There is a traditional approach to predicting the customer retention rate, and companies conduct marketing campaigns using this predicted retention rate to maintain their customer base. Recently, some researchers proposed approaches that measures customers’ sensitivity to firms’ offers using uplift models and even consider profitability. However, this approach was limited to contractual settings in which the customer’s attrition was explicitly revealed

expanded research was needed to apply uplift models to noncontractual settings in which customer attrition was not explicitly revealed. Therefore, by using the concept of customer lifetime value, we propose an approach that could apply uplift models in noncontractual settings. To this end, we conducted a large-scale field experiment with a Korean T-commerce company to determine the effectiveness of our proposed approach. We can predict customers whose cumulative expenditure is expected to increase due to a promotion in the 8 weeks after the promotion. Among them, the top 2% saw a significant increase in cumulative expenditure over the 8 weeks after the promotion. In addition, we confirmed that the cumulative expenditure increased significantly to about $89.86, even until the 20th week after the promotion. This paper contributes by suggesting a marketing campaign strategy that considers the long-term effects of promotions using the concept of customer lifetime value.