customers, to foster customers' full profit potential. Corporate success depends on an organization's ability to build and maintain loyal and valued
reminded of the 80/20 rule (80% of the profits are produced by
Expert Systems with Applica
South Korea. Tel.:C82 33 248 1835; fax:C82 33 256 3424.
E-mail address: firstname.lastname@example.org (H.-S. Hwang).
customer relationships. Therefore, it is essential to build refined strategies for customers based on their value.
In this paper, we propose a framework for analyzing customer value and segmenting customers based on their value. After segmenting
customers based on their value, strategies building according to customer segment will be illustrated through a case study on a wireless
q 2005 Elsevier Ltd. All rights reserved.
Keywords: Customer lifetime value; Customer segmentation; Data mining
Customer Relationship Management (CRM) has become a
leading business strategy in highly competitive business
environment. CRM can be viewed as 'Managerial efforts to
manage business interactions with customers by combining
business processes and technologies that seek to understand a
company's customers' (Kim, Suh, & Hwang, 2003). Compa-
nies are becoming increasingly aware of the many potential
benefits provided by CRM. Some potential benefits of CRM are
as follows: (1) Increased customer retention and loyalty, (2)
Higher customer profitability, (3) Creation value for the
customer, (4) Customization of products and services, (5)
Lower process, higher quality products and services (Jutla,
Craig, & Bodorik, 2001; Stone, Woodcock, & Wilson, 1996).
When evaluating customer profitability, marketers are often
top 20% of profitable customers and 80% of the costs are
produced by top 20% of unprofitable customers) (Duboff,
1992; Gloy, Akridge, & Preckel, 1997).
The core parts of CRM activities are understanding
customers' profitability and retain profitable customers
(Hawkes, 2000). To cultivate the full profit potentials of
customers, many companies already try to measure and use
customer value in their management activities (Gloy, Akridge,
& Preckel, 1997; Rosset, Neumann, Eick, Vatnik, & Idan,
2002; Verhoef, & Donkers, 2001). Therefore, many firms are
needed to assess their customers' value and build strategies to
retain profitable customers.
This paper aims at suggesting a new LifeTime Value (LTV)
model and customer segmentation considering customer
defection and cross-selling opportunity. We will also propose
marketing strategies after segmenting customer base. This
paper is organized as follows. Section 2 reviews the previous
Customer segmentation and strate
Su-Yeon Kim a, Tae-Soo Jung b, E
a School of Computer and Information Technology, Daegu Univers b Department of Management Strategy, Samsung Economic Research I
c Department of Industrial Engineering, POSTECH, San 31, d Department of Business...