A Continuous Payment Customer Migration Model with Periodicity

Abstract

The concept of customer equity and its related individual measure customer lifetime value have been shown to be a valuable tool in managing the marketing strategies of the firm. It’s components (Blattberg, Getz, and Thomas 2001) have allowed researchers to study which customers to acquire (Verhoef and Donkers 2005), which customers to retain (Rossi, McCulloch, and Allenby 1996, Hogan, Lemon, and Libai 2003, Thomas, Blattberg, and Fox 2004, Lewis 2005), and which customers to target for additional products and services (Kamakura et al. 1991, 2003, Li, Sun, and Wilcox 2005). Customer Equity provides a means of measuring return on marketing investments (Rust, Lemon, Ziethaml 2004) and has recently been tied to market valuation of the firm (Gupta, Lehmann, and Stuart 2004, Gupta and Lehmann 2005). Direct links between the components (Blattberg, Getz, and Thomas 2001, Bolton, Lemon, and Verhoef 2004) and drivers (Rust, Lemon, and Ziethaml 2000) of customer equity have been established for loyalty programs (Bolton, Kannan, and Bramlett 2003, Reinartz and Kumar 2002), pricing strategies (Danaher 2002, Lewis 2005), and customer satisfaction (Bolton 1998, Bolton and Lemon 1999, Verhoef et al. 2001). Therefore, the need for models of customer lifetime value is well established and documented (Jain and Singh 2002, Gupta et al. 2006).