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Acquisition, affinity and rewards: Do they stay or do they go?

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Abstract

Customer relationship management seeks to understand how to generate profitable customers who enter into a long-term relationship with a firm. In this paper, we examine the role of modes of acquisition and retention programmes on customer lifetime in the context of a credit card issuing bank. While other papers have studied retention programmes such as loyalty card and reward card, there is no published study in the credit card context. Using a rich data set on nearly 5,000 customers observed over a three-year period, we are able to provide detailed insights about the efficacy of these strategies. We show that affinity cards customers and customers acquired through direct mail have longer lifetimes. We also find that reward card programmes generate customers with a shorter lifetime. Finally we re-examine the link between long-life customers and profitability and find that the relationship is weak, consistent with recent findings.

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Authors and Affiliations

  1. Towson University, 8000 York Road, Baltimore, 21252, MD, USA

    Erin M. Steffes, B P S Murthi & Ram C Rao

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  1. Erin M. Steffes
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  2. B P S Murthi
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  3. Ram C Rao
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Correspondence to Erin M. Steffes.

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1Erin M. Steffes is an Assistant Professor of Marketing in the College of Business and Economics at Towson University. She graduated from The College of William and Mary in Williamsburg, VA, earning her BBA with a concentration in Marketing. She furthered her studies at the University of Texas at Dallas, where she received both a MBA and a PhD in Management Science with a concentration in Marketing. Her research interests include customer lifetime value, affinity marketing, Internet marketing, and bank card marketing. She has published in journals such as Marketing Letters and Internet Research.

2B.P.S. Murthi is an Associate Professor of Marketing in the School of Management at The University of Texas at Dallas. A graduate of IIT Delhi (chemical engineering) and IIM Calcutta (MBA — marketing), he obtained his doctoral degree from Carnegie-Mellon University, Pittsburgh. His research deals primarily with consumer promotions, personalization on the Internet, and customer relationship management, and he has published in top journals such as Marketing Science, Journal of Marketing Research, and Journal of Marketing, and Management Science. He teaches in the MBA, executive MBA, and PhD programmes.

3Ram C. Rao is Founders Professor and Professor of Marketing in the School of Management at The University of Texas at Dallas. He holds a PhD from Carnegie-Mellon University. His current research focuses on competitive pricing and retailing. He has published in all the leading Marketing journals. He is Founder Editor of the Internet Marketing journal, ROMS (Review of Marketing Science). He also serves on the advisory boards of Marketing Research Network and Quantitative Marketing and Economics, and on the editorial boards of Marketing Science and Journal of Marketing Research.

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M. Steffes, E., Murthi, B. & Rao, R. Acquisition, affinity and rewards: Do they stay or do they go?. J Financ Serv Mark 13, 221–233 (2008). https://doi.org/10.1057/fsm.2008.17

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  • DOI: https://doi.org/10.1057/fsm.2008.17

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