Title: Customer value modelling in the energy market and a practical application for marketing decision making

Authors: Sietske Lhoest-Snoeck; Erjen Van Nierop; Peter C. Verhoef

Addresses: Marketing Intelligence Department, Zilveren Kruis, Leiden, The Netherlands; Marketing Department, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands ' EFMI Business School, Leusden, The Netherlands; Marketing Department, Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands ' Marketing Department, Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

Abstract: In marketing literature, several Customer Lifetime Value (CLV) models can be found. Most include retention, revenues and direct marketing costs. In this study, we contribute to the existing literature on CLV by including service costs as a value detractors and credit risk as a revenue risk. We show that, in our study context, customer value should include not only revenues, but also service costs and credit risk. In addition, this study provides a general framework for using the outcomes of the customer value model in general marketing decision making. Of particular interest are the resulting value consequences of marketing actions. We simulate the consequences of four different actions and show how a combination of changed value due to the action and the success probability of that action lead to a simulation value per customer, which can be used to identify the most suitable action for each customer.

Keywords: customer lifetime value; CLV; service costs; credit losses; practical application; marketing policy making; customer value modelling; energy markets; marketing decision making; credit risk; revenue risk; simulation.

DOI: 10.1504/IJECRM.2015.070696

International Journal of Electronic Customer Relationship Management, 2015 Vol.9 No.1, pp.1 - 32

Available online: 18 Jul 2015 *

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