Allocation of Marketing Resources to Optimize Customer Equity: Managing Customers as Financial Assets

To stay competitive, companies spend billions of dollars each year on building long-term relationships with their customers. Marketing managers are therefore constantly challenged with the problem of how to allocate a limited marketing budget across customers and competing marketing initiatives. This work addresses the problem of how to efficiently allocate marketing resources to maximize the financial value generated by marketing investments. Advanced stochastic models addressing the following three issues are proposed: a) maximization of customer lifetime value by linking marketing actions to the financial value generated during the relationship with the company, b) estimation of the financial profile of customers and, c) use of risk management techniques to select the optimal customer portfolio. This research has been done while the author was working at the Math & Computer Science Department of the IBM Zurich Research Laboratory in Rüschlikon, Switzerland.