Analysis of customer lifetime value and marketing expenditure decisions through a Markovian-based model

Yeliz Ekinci*, Füsun Ülengin, Nimet Uray, Burç Ülengin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

25 Citations (Scopus)

Abstract

The general aim of this study is to provide a guide to the future marketing decisions of a firm, using a model to predict customer lifetime values. The proposed framework aims to eliminate the limitations and drawbacks of the majority of models encountered in the literature through a simple and industry-specific model with easily measurable and objective indicators. In addition, this model predicts the potential value of the current customers rather than measuring the current value, which has generally been used in the majority of previous studies. This study contributes to the literature by helping to make future marketing decisions via Markov decision processes for a company that offers several types of products. Another contribution is that the states for Markov decision processes are also generated using the predicted customer lifetime values where the prediction is realized by a regression-based model. Finally, a real world application of the proposed model is provided in the banking sector to show the empirical validity of the model. Therefore, we believe that the proposed framework and the developed model can guide both practitioners and researchers.

Original languageEnglish
Pages (from-to)278-288
Number of pages11
JournalEuropean Journal of Operational Research
Volume237
Issue number1
DOIs
Publication statusPublished - 16 Aug 2014

Funding

This paper is a part of the PhD thesis of Yeliz Ekinci which was held at Istanbul Technical University (ITU) and she was awarded by The Scientific and Technological Research Council of Turkey 2211 scholarship. This research was also supported by Republic of Turkey, Ministry of Industry and Trade (Project No: 00432.STZ.2009-2) and ITU, Institute of Science and Technology (Project No: 34228). The interpretation and conclusions revealed in this study do not represent the official perspectives of the institutes stated above. The authors would like to express their deep gratitude to the anonymous referees for their invaluable comments and to the anonymous financial services company that supplied the data.

FundersFunder number
International Technological University
Türkiye Bilimsel ve Teknolojik Araştirma Kurumu
Ministerstvo Průmyslu a Obchodu00432.STZ.2009-2
Institute of Nano Science and Technology34228

    Keywords

    • Customer lifetime value
    • Forecast models
    • Markov decision process

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