Customer profitability analysis: Measurement, concentration, and research directions

Abstract

As marketing activities become more precisely targeted to consumers through direct and interactive forms of communication, customer profitability takes on a central role in the development of marketing strategies. This paper provides a conceptual and methodological foundation for measuring customer profitability by generalizing approaches to measuring customer lifetime value in direct marketing for broader target marketing applications. Particular emphasis is placed on the precise specification of the inputs into a profitability analysis and the measures of the degree of concentration of profits among customers. An empirical analysis involving the profitability of customers in a business-to-business marketing context is described, along with research propositions for future work on the determinants of customer profitability.