What Matters in Managerial Judgments of Customer Value?

36 Pages Posted: 18 Oct 2004

See all articles by David A. Schweidel

David A. Schweidel

McDonough School of Business, Georgetown University

Peter Fader

University of Pennsylvania - Marketing Department

Robert J. Meyer

University of Pennsylvania - Marketing Department

Date Written: October 2004

Abstract

The ability of managers to utilize sales-history data to form accurate inferences about the long-term value of customers is examined. Although in recent years considerable advances have been made in the development of formal models that allow such assessments to be, statistically, in most real-world settings the identification of key customers remains an intuitive process. We examine the process that drives intuitive assessments using data from a laboratory simulation that asks respondents to identify which of two customers is likely to be the better long-run prospect based on sales histories. These data allow us to identify the features of sales-history data that appear most influential in driving intuitive key-customer predictions, and compare the nature of these decisions with those that would be made using a well-established statistical model, the Pareto/NBD.

We find that respondents utilize sales data in a way that is quite dissimilar from that which would coincide with the Pareto/NBD. For example, empirical results reveal that intuitive judgments under-attend to information about the recency of transactions, and that the prediction process is altered depending on the managerial objective of the assessment task, such as whether to add a customer to a key-account list or delete the customer - a distinction that would not be recognized by the statistical model. Implications of the findings for both academic and applied work in customer relationship management are discussed.

Keywords: Customer valuation, customer lifetime value, managerial judgment, RFM

Suggested Citation

Schweidel, David A. and Fader, Peter and Meyer, Robert J., What Matters in Managerial Judgments of Customer Value? (October 2004). Available at SSRN: https://ssrn.com/abstract=605501 or http://dx.doi.org/10.2139/ssrn.605501

David A. Schweidel (Contact Author)

McDonough School of Business, Georgetown University ( email )

Washington, DC 20057
United States

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Robert J. Meyer

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
503
Abstract Views
2,508
rank
67,369
PlumX Metrics