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Budget allocation for customer acquisition and retention while balancing market share growth and customer equity

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  • Hsiu-Yuan Tsao

Abstract

Following the Blattberg and Deighton (BD) model, we incorporate market share growth to explore links between acquisition and retention. We then devise a method for nonlinear programming using a spreadsheet to balance the objectives of market share growth in the short term and customer equity in the long term. The aim of this approach is to determine the optimal spending allocation for customer acquisition and retention and, by applying this allocation to the numerical example used in the original BD model, to balance these objectives. We demonstrate that the differential unit cost of marginal effects, ceiling rate, efficiency, and allocation of spending on acquisition and retention to achieve market share growth can maximize customer equity. We also develop a criterion to help firms decide where to place spending emphasis, that is, on retaining existing customers or on gaining new ones, while keeping the objectives of market share growth and customer equity firmly in mind. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Hsiu-Yuan Tsao, 2013. "Budget allocation for customer acquisition and retention while balancing market share growth and customer equity," Marketing Letters, Springer, vol. 24(1), pages 1-11, March.
    • Handle: RePEc:kap:mktlet:v:24:y:2013:i:1:p:1-11
    DOI: 10.1007/s11002-012-9217-y
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    References listed on IDEAS

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    1. Berger, Paul D. & Bechwati, Nada Nasr, 2001. "The allocation of promotion budget to maximize customer equity," Omega, Elsevier, vol. 29(1), pages 49-61, February.
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    4. repec:dgr:rugsom:00f20 is not listed on IDEAS
    5. H-Y Tsao & L Pitt & C Campbell, 2010. "Analysing consumer segments to budget for loyalty and promotion programmes and maximize market share," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(10), pages 1523-1529, October.
    6. Ehrenberg, Andrew S. C. & Uncles, Mark D. & Goodhardt, Gerald J., 2004. "Understanding brand performance measures: using Dirichlet benchmarks," Journal of Business Research, Elsevier, vol. 57(12), pages 1307-1325, December.
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    Cited by:

    1. Sun, Yang & Garrett, Tony C. & Phau, Ian & Zheng, Bing, 2020. "Case-based models of customer-perceived sustainable marketing and its effect on perceived customer equity," Journal of Business Research, Elsevier, vol. 117(C), pages 615-622.
    2. Chang, Shuhua & Zhang, Zhaowei & Wang, Xinyu & Dong, Yan, 2020. "Optimal acquisition and retention strategies in a duopoly model of competition," European Journal of Operational Research, Elsevier, vol. 282(2), pages 677-695.

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