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A sequence analysis approach to segmenting credit card customers

Author

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  • Ho, Hillbun
  • Tien, Keng-Ming (Terence)
  • Wu, Anne
  • Singh, Sonika

Abstract

This research examines the longitudinal relationships between patterns of customer loyalty behavior and firm financial outcomes in the context of credit card use. By examining credit card users' transactions with a focal bank and its competitors, this study creates a typology of loyalty behavior and employs a sequence analysis to segment customers on the basis of their behavioral patterns exhibited over time. The analysis results in six distinct customer segments: Loyalist, Switching Loyalist, Switching Defector, Defector, Dormant Loyalist, and Dormant Defector. We subsequently estimate the revenue, servicing costs, and profitability associated with each segment, and assess differences across segments. We discuss the implications for managing distinct credit card customer segments and optimizing the bank's marketing resource allocation.

Suggested Citation

  • Ho, Hillbun & Tien, Keng-Ming (Terence) & Wu, Anne & Singh, Sonika, 2021. "A sequence analysis approach to segmenting credit card customers," Journal of Retailing and Consumer Services, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:joreco:v:59:y:2021:i:c:s0969698920313990
    DOI: 10.1016/j.jretconser.2020.102391
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    References listed on IDEAS

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    Cited by:

    1. Rains, Tim & Longley, Paul, 2021. "The provenance of loyalty card data for urban and retail analytics," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).

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