Statistical Methods in Customer Relationship Management

4.6 SOW

Loyalty programs and direct mailings are two ways that companies use to manage customer relationships. The goal is to build close relationships with customers and thus enhance customers' relationship perceptions. Researchers have investigated the effects of companies' CRM efforts on customer retention and customer share development. Verhoef [4] considered customer retention as a binary outcome, and customer share of customer i for supplier j in category k at time t was defined as number of services purchased in category k at supplier j at time t divided by number of services purchased in category k from all suppliers at time t. The author first modeled customer retention with a probit model for all customers and then modeled customer share with a regression model for the customers who remained with the company. The author used Heckman's (1976) two-step procedure to correct for sample selection bias by incorporating the inverse Mills ratio obtained from the probit model. For both the probit and regression models, the author included past purchase behavior, customer relationship perceptions, and loyalty program dummy variables as independent variables. For the regression model, the difference between the logs of customer share at and was the dependent variable denoting the ...