The Impact of Acquisition Channels on Customer Equity

IESE Working Paper No. D/516

29 Pages Posted: 9 Jan 2004

See all articles by Julian Villanueva

Julian Villanueva

Assistant Professor of Marketing

Shijin Yoo

University of California, Los Angeles (UCLA) - Anderson School of Management

Dominique M Hanssens

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: August 2003

Abstract

Customer equity (CE henceforth) is a powerful new paradigm to evaluate the firm's value and to optimally allocate marketing resources. This paper is focused on the relationship between customer acquisition and CE. The authors attempt to answer the following four questions: 1) how should customer acquisition channels be categorized to make them meaningful to managers and academics?; 2) how do we measure the effects of different acquisition channels on the firm's performance?; 3) how do we disentangle short-run effect and long-run effects?, and 4) how should the manager allocate a limited budget among the acquisition channels so as to maximize customer equity? The authors first propose a way of categorizing customer acquisition channels according to their level of contact and intrusiveness. A vector-autoregressive (VAR) model is used to examine the dynamics of acquisition channels and the firm's performance, and an empirical illustration on a surviving Internet company is provided. The results show that each cohort (i.e., customers from different acquisition channels) has different short-run and long-run effects on the firm's performance by the subsequent login and purchasing behavior. Building on previous research on optimal resource allocation, the authors develop a Marketing Decision Support System (MDSS) to help managers allocate the acquisition budget among different channels with the objective of maximizing customer equity. The consequences of naively maximizing the short-term profit and not accounting for differences in the margin contribution of different cohorts are illustrated.

Keywords: Customer equity, customer acquisition, VAR, long-run modeling

Suggested Citation

Villanueva, Julian and Yoo, Shijin and Hanssens, Dominique M, The Impact of Acquisition Channels on Customer Equity (August 2003). IESE Working Paper No. D/516, Available at SSRN: https://ssrn.com/abstract=459200 or http://dx.doi.org/10.2139/ssrn.459200

Julian Villanueva

Assistant Professor of Marketing ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Shijin Yoo

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Dominique M Hanssens (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-4497 (Phone)
310-206-7422 (Fax)

HOME PAGE: http://www.anderson.ucla.edu/faculty/dominique.hanssens/