Analysis of Customer Lifetime Value and Marketing Expenditure Decisions Through a Markovian-Based Model

European Journal of Operational Research 237 (2014) 278–288

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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Innovative Applications of O.R.

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

Yeliz Ekinci a,⇑, Füsun Ülengin b, Nimet Uray c, Burç Ülengin c

a

Industrial Engineering, Istanbul Bilgi University, Istanbul, Turkey Sabanci School of Management, Sabanci University, Istanbul, Turkey c Management Engineering, Istanbul Technical University, Istanbul, Turkey

b

a r t i c l e

i n f o

a b s t r a c t

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 industryspecific 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. Ó 2014 Elsevier B.V. All rights reserved.

Article history: Received 27 April 2012 Accepted 7 January 2014 Available online 15 January 2014 Keywords:...