Customer Valuation as a Driver of Relationship Dissolution

Sabrina Helm

Heinrich-Heine-Universities, Germany

ABSTRACT. As all customers are not created equal (Hallberg & Ogilvy, 1995), the different contributions of customers to a supplier’s goals have to be evaluated to grant efficient relationship marketing. Further- more, a handling system has to be developed for unprofitable customer relationships. This is a hitherto neglected field, as marketing researchers and practitioners are generally rather interested in attaining and keeping customers, not in the ending of relationships. The article aims at integrating the concepts of customer equity and profitability with approaches of relationship dissolution, which have recently emerged in the literature. Different aspects of calculating the value of customer relation- ships and value-based criteria that focus on monetary and non-monetary components of a customer’s value are discussed. In an exploratory study undertaken in the German mechanical engineering industry, the relevance of customer valuation to dissolution decisions is analyzed. [Article cop- ies available for a fee from The Haworth Document Delivery Service: 1-800-HAWORTH. E-mail address: <> Website: <> © 2004 by The Haworth Press, Inc. All rights reserved.]

Building and retaining strong and long-term relationships to customers are the cornerstones of relationship marketing. But it would be a gross oversimplification to assume that long-term customers are always more profitable (Dowling and Uncles 1997; Reinartz, & Kumar 2000). For a profitable relationship to exist, both the supplier and the buyer must benefit. This has already been implied by Grönroos’ (1994) definition of relationship marketing. It pinpoints mutually beneficial ex- changes and the fulfillment of promises by both parties throughout the lifetime of the relationship. Therefore, relationship marketing is not only about “attracting, maintaining and . . . enhancing customer relationships” (Berry 1983), but can also be about terminating them.

This means that firms should strive to gain and keep only the right customers (Blattberg & Deighton 1996). But how can firms determine if a customer is a “right” one? And what is to be done when a current customer is detected to be a “wrong” one? The first problem calls for a valuation of customer relationships, the second for strategies to handle unprofitable customers.

Despite a growing number of publications on relationship marketing (for an overview, see Sheth & Parvatiyar 2002), previous research has not analyzed the consequences of customer valuation for relationship marketing. Taking this void in the literature as a starting point, the related concepts of customer equity and customer profitability (Rust, Zeithaml, & Lemon 2000; Blattberg, Getz, & Thomas 2001) are investigated. They play pivotal roles in recent discussions in the marketing literature and practice. The further investigation is motivated by the following research questions:

1. What are the main conceptual implications of customer equity and profitability for dissolution management?

2. What methods to measure the value of a customer relationship are used in practice?

3. What criteria determine if a customer relationship is to be dis- posed of?

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