The customer equity implications of using incentives in acquisition channels: A nonprofit application

A core objective of customer–company relationship management is the allocation of marketing resources across customer acquisition and retention so as to maximize customer equity (CE). Although extant CE models cover much important ground, the literature continues to overlook two options commonly exercised by managers – the option to change the orientation or degree of focus of a channel on acquisition versus retention and the option to boost acquisition rates by using margin-reducing incentives such as discounts, coupons, gifts or bonuses. The present research addresses these issues by presenting a deterministic model that allows managers to determine whether and when sacrificing margins in acquisition is justified from the perspective of CE maximization. Sensitivity analyses and a real-world application with a large, private nonprofit organization in the United States illustrate the use of the model and its ability to identify an optimal CE greater than that in a competing model.