chapter  10
Modeling customer churn in a non-contractual setting: the case of telecommunications service providers
Pages 13

Asmarkets become increasingly saturated, companies have acknowledged that their business

strategies should focus on identifying those customers who are likely to churn (Hadden,

Tiwari,Roy,&Ruta, 2005).While acquiring newcustomers is the first step for any business to

start growing, the importance of customer retention should not be overlooked. Reinartz,

Thomas, and Kumar (2005) showed that insufficient allocation to customer retention efforts

would have a greater negative impact on long-term customer profitability as compared to

insufficient allocation to customer-acquisition efforts. One of the most significant ways of

increasing customers’ value is to keep themfor longer periods of time. Inotherwords, retained

customers produce higher revenues andprofitmargins than the newones (Reichheld&Sasser,

1990). Since the net return on investments for retention strategies is higher than that for

acquisitions, it is claimed that companies first spend their marketing resources to keep the

existing customers rather than to attract new ones (Mozer, Wolniewicz, Grimes, Johnson,

& Kaushansky, 2000; Rust & Zahorik, 1993). However, because of the emergence of

e-commerce, retaining the existing customers is not as easy as it used to be. Peppard

(2000)maintains that the Internet channel has empowered those customers who are no longer

stuck with the decisions of a single company and has led to exacerbation of the competition.

While competitors are only one ‘click away’, customer empowerment is likely to amplify the

attrition rate of a company’s customers (Lejeune, 2001).