Research Handbooks in Business and Management series
Edited by V. Kumar and Denish Shah
Chapter 5: The value of flexibility: real options and customer lifetime value
It is a cornerstone of relationship marketing and customer relationship management (CRM) that creating and maintaining customer relationships drives profitability and growth. Managers have claimed that firms benefit from long-term customer relationships, as customers with greater tenure make more purchases, show reduced operating costs and are more likely to engage in referral behavior, and are associated with lower operating costs (Reichheld and Sasser, 1990) – at least in the case of contractual relationships (Reinartz and Kumar, 2000). Likewise, academic research has shown a positive relationship between satisfaction and share-of-wallet (Cooil et al., 2007), analyzed the benefits of allocating scarce marketing resources based on past behavior and customer value (Kumar et al., 2008), and provided an indication that referred customers are more profitable and more loyal (Schmitt, Skiera, and Van den Bulte, 2011). It is therefore not surprising that relationship maintenance is the dimension of the CRM process that is most strongly related to perceived and objective performance (Reinartz, Krafft, and Hoyer, 2004).
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