Establishing the link between relationship marketing, customer profitability and customer lifetime

Customer relationship management has become an important area of research in recent times. There is paucity of research that looks at the customer profit and customer longevity implications of customer acquisition and retention strategies. Using a proprietary data set from the credit card industry, we first examine the profit implications and second examine the customer lifetime implications of different modes of acquisition of customers. Further, we examine the role of two popular customer retention strategies, namely, reward cards and affinity cards in driving both customer profitability and longevity. Surprisingly, we find that in our dataset, customers with reward cards and affinity cards are less profitable than those customers without access to these retention strategies. However, we find that affinity customers have longer lifetimes than non-affinity customers. We also find that Internet and direct mail communications are more profitable than telemarketing and direct selling in customer acquisition. Additionally, we find that direct mail customers have longer lifetimes than direct selling customers. We provide possible explanations for these findings. These results have important managerial implications for resource allocation in acquisition and retention strategies.