Managing Customers as Investments The Strategic Value of Customers in the Long Run

Appendix B. IMPACT OF RETENTION ON SHARE AND PROFITS

This appendix provides mathematical details for assessing the impact of retention rates on the long-run market share and profits of a firm.

IMPACT OF RETENTION ON SHARE

Consider the retention-defection or switching matrix for a two-brand market (Table B.1). Here brand A has a 95% retention rate, and brand B has 80% retention rate. This is the same as scenario 3 discussed in Chapter 3. Assume that at time period 0, both brands start with an equal share of 50% (you can easily verify, and it will be clear at the end of this discussion, that results do not change if starting shares are different). If the market consists of 100 units, then both brands have 50 units at time 0.

Table B.1. Retention-Defection ...