Research Handbooks in Business and Management series
Edited by V. Kumar and Denish Shah
Over the years, companies have focused on building and maintaining profitable customer relationships for maximizing firm profitability (Kumar and Rajan, 2012). Tracking individual customers and measuring their profitability is challenging and requires innovative customer relationship management strategies. This becomes even more challenging in a non-contractual setting, where the customer is not tied to the company by any bond or contract. However, there are various ways to measure individual customer profitability. Some of the earlier metrics were recency-frequency-monetary (RFM) value, share-of-wallet (SOW), and past customer value (PCV). However, all these measures use past customer behavior under the assumption that it will be demonstrated in the future too (Kumar, 2008). Yet, this may not be true in several situations, especially in a non-contractual environment. Further, these metrics do not provide any customer segmentation strategies.
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