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V. Kumar, R. Venkatesan and B. Rajan

References Donkers, B., Peter C. Verhoef and M.G. de Jong (2007), “Modeling CLV: A Test of Competing Models in the Insurance Industry”, Quantitative Marketing and Economics, Vol. 5, No. 2. (June 2007), pp. 163 - 190. Kumar, V., Denish Shah and Rajkumar Venkatesan (2006), “Managing Retailer Profitability - One Customer at a Time!” Journal of Retailing, 82(4), pp. 277 - 294. Kumar, V., Rajkumar Venkatesan, Tim Bohling and Denise Beckmann (2008), “The Power of CLV: Managing Customer Lifetime Value at IBM

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Philipp Schmitt, Bernd Skiera and Christophe Van den Bulte

Abstract

Marketers increasingly use word of mouth to promote products or acquire new customers. But is such companystimulated WOM effective? Are customers who are referred by other customers really worth the effort? A recent study clearly says “yes”. In a study of almost 10,000 accounts at a German bank, the referred customers turned out to be 25 % more profi table than customers acquired by other means. Over a 33-month period, they generated higher profi t margins, were more loyal and showed a higher customer lifetime value. The difference in lifetime value between referred and non-referred customers was most pronounced among younger people and among retail (as opposed to private banking) customers. The reward of € 25 per acquired customer clearly paid off. Given the average difference in customer lifetime value of € 40, this amount implied a return on investment (ROI) of roughly 60 % over a six-year period. The encouraging results of this study, however, do not imply that “viral-for-hire” works in each and every case. Referral programs would be most beneficial for products and services that customers might not appreciate immediately. Products and services that imply some kind of risk would also benefit to a more than average degree from referrals because prospects are likely to feel more confi dent when a trusted person has positive experiences. Companies should consider carefully which prospects to target with referral programs and how large a referral fee to provide.

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Thorsten Wiesel, Bernd Skiera and Julián Villanueva

References Berger, P.D. and N.L. Nasr (1998), “Customer Lifetime Value: Marketing Models and Applications,“ Journal of Interactive Marketing, 12, pp. 17 - 30. Blattberg, R.C. and J. Deighton (1996), “Managing Marketing by the Customer Equity Test,“ Harvard Business Review, 74, pp. 136 - 144. Gupta, S. and D.R. Lehmann (2003), “Customer As Assets,“ Journal of Interactive Marketing, 17, pp. 9 - 24. International Accounting Standards Board (2004), “Framework for the Preparation and Presentation of

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Tomáš Formánek and Radek Tahal

-370. McMullan, R. and Gilmore, A. (2008), “Customer loyalty: an empirical study”, European Journal of Marketing, Vol. 42, No. 9/10, pp. 1084-1094. Meyer-Waarden, L. (2007), “The effects of loyalty programs on customer lifetime duration and share of wallet”, Journal of Retailing , Vol. 83, No. 2, pp. 223-236. Oliver, R.L. (1999), “Whence consumer loyalty?”, The Journal of Marketing , Vol. 63, No. Special issue, pp. 33-44. Reichheld, F.F. (2003), “The one number you need to grow”, Harvard business review , Vol. 81, No. 12, pp. 46-55. Rundle-Thiele, S

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Goran Vlašić and Emanuel Tutek

to Customer Centricity”, Journal of Service Research, 9 (2), 113-24. Teece, D. J. (2010): „Business Models, Business Strategy and Innovation“, Long Range Planning, 43 (2-3): 172-194. Venkatesan, Rajkumar and V. Kumar (2004): “A Customer Lifetime Value Framework for Customer Selection and Resource Allocation Strategy,” Journal of Marketing, 68 (4): 106-125. Vlaskovits Patrick (2011): “Henry Ford, innovation, and Thet ‘Faster Horse’ Quote“, Harvard Business Review, August. Vorhies, Douglas W. and Neil A

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Karl Farmer and Birgit Bednar-Friedl

-157 Schaefer M. B. (1954) Some aspects of the dynamics of populations important to the management of commercial marine fisheries, Bulletin of Inter-American Tropical Tuna Commission 1, 25-56 Shell K. (1971) Notes on the economics of infinity, Journal of Political Economy 79, 1002-1012 Smith V. L. (1968) Economics of production from natural resources, American Economic Review 58, 409-432 Valente S. (2008) Intergenerational transfers, lifetime welfare, and resource preservation, Environment and Development Economics, 13 (1), 53-78

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Shamsul Huq Bin Shahriar, Sayed Arafat, Md. Fayjullah Khan and Mahbub Ul Islam

-428. [71] Robbins, S.P. (2001). Organizational Behaviour - Concepts Controversies & Applications. USA: Prentice Hall International Inc. [72] Rust, R.T., Lemon, K.N. and Zeithaml, V.A. (2004). Return on marketing: using customer equity to focus marketing strategy, Journal of Marketing, 68(1), pp. 109-27. [73] Rust, R.T., Zeithaml, V.A. and Lemon, K.N. (2000). Driving Customer Equity. How Customer Lifetime Value is Reshaping Corporate Strategy, New York, NY: The Free Press. [74] Schoefer, K. and Diamantopoulos, A. (2008). The

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Paul Hanly, Alison Pearce and Linda Sharp

the potential stream of output that could have been produced over the course of a lifetime without premature death (in this case, due to cancer). This method values productivity loss as the present value of foregone future income, with lost income acting as a proxy for lost output ( Berger et al., 2001 ; Tarricone, 2006 ). In a number of seminal studies, Rice (1966 , 1967) calculated disease-related morbidity and mortality costs by assessing illness burden in terms of the flow of goods and services foregone in the US. Further development of this conceptual

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Maureen Maloney and Alma McCarthy

. Neoclassical economists developed lifetime consumption models and regret theory that were used to investigate pension decision-making. Bounded rationality is used to ‘…designate rational choice that takes into account the cognitive limitations of the decision-maker—limitations of both knowledge and computational capacity’ ( Simon, 2008 : 893). Building on the work of Simon, behavioural psychologists and economists argue that heuristics and biases commonly observed in decision-making are evidence of predictable departures from rational choice models. Furthermore, the