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—Customer Equity and Lifetime Management (CELM) Finnair Case Study

Author

Listed:
  • Giuliano Tirenni

    (IBM Research, Zurich Research Laboratory, Saeumerstrasse 4, 8803 Rueschlikon, Switzerland and Marc Brandis Strategic Consulting, Grafenauweg 3, 6300 Zug, Switzerland)

  • Abderrahim Labbi

    (IBM Research, Zurich Research Laboratory, Saeumerstrasse 4, 8803 Rueschlikon, Switzerland)

  • Cesar Berrospi

    (IBM Research, Zurich Research Laboratory, Saeumerstrasse 4, 8803 Rueschlikon, Switzerland)

  • André Elisseeff

    (IBM Research, Zurich Research Laboratory, Saeumerstrasse 4, 8803 Rueschlikon, Switzerland)

  • Timir Bhose

    (Finnair Oyj, Lentäjäntie 3, Helsinki Airport, 01053 Helsinki, Finland)

  • Kari Pauro

    (Finnair Oyj, Lentäjäntie 3, Helsinki Airport, 01053 Helsinki, Finland)

  • Seppo Pöyhönen

    (Finnair Oyj, Lentäjäntie 3, Helsinki Airport, 01053 Helsinki, Finland)

Abstract

The Customer Equity and Lifetime Management (CELM) solution is based on a decision-support system that offers marketing managers a scientific framework for the optimal planning and budgeting of targeted marketing campaigns to maximize return on marketing investments. The CELM technology combines advanced models of Markov decision processes (MDPs), Monte Carlo simulation, and portfolio optimization. MDPs are used to model customer dynamics and to find optimal marketing policies that maximize the value generated by a customer over a given time horizon. Lifetime value optimization is achieved through dynamic programming algorithms that identify which marketing actions, such as cross-selling, up-selling, and loyalty marketing campaigns, transition customers to better value and loyalty states. The CELM technology can also be used to simulate the financial impact of a given marketing policy using Monte Carlo simulation. This allows marketing managers to simulate several targeting scenarios to assess budget requirements and the expected impact of a given marketing policy. The benefits of the solution are illustrated with the Finnair case study, where CELM has been used to optimize marketing planning and budgeting for Finnair's frequent-flyer program (FFP).

Suggested Citation

  • Giuliano Tirenni & Abderrahim Labbi & Cesar Berrospi & André Elisseeff & Timir Bhose & Kari Pauro & Seppo Pöyhönen, 2007. "—Customer Equity and Lifetime Management (CELM) Finnair Case Study," Marketing Science, INFORMS, vol. 26(4), pages 553-565, 07-08.
    • Handle: RePEc:inm:ormksc:v:26:y:2007:i:4:p:553-565
    DOI: 10.1287/mksc.1060.0249
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matsuoka, Kohsuke, 2021. "A framework for variance analysis of customer equity based on a Markov chain model," Journal of Business Research, Elsevier, vol. 129(C), pages 57-69.
    2. Hans Buhl & Robert Klein & Johannes Kolb & Andrea Landherr, 2011. "CR 2 M—an approach for capacity control considering long-term effects on the value of a customer for the company," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 22(2), pages 187-204, December.
    3. Klein, Robert & Kolb, Johannes, 2015. "Maximizing customer equity subject to capacity constraints," Omega, Elsevier, vol. 55(C), pages 111-125.
    4. Hamidreza Koosha & Amir Albadvi, 2020. "Allocation of marketing budgets to maximize customer equity," Operational Research, Springer, vol. 20(2), pages 561-583, June.
    5. Kohsuke Matsuoka, 2020. "Exploring the interface between management accounting and marketing: a literature review of customer accounting," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 157-208, September.
    6. Gary L. Lilien & John H. Roberts & Venkatesh Shankar, 2013. "Effective Marketing Science Applications: Insights from the ISMS-MSI Practice Prize Finalist Papers and Projects," Marketing Science, INFORMS, vol. 32(2), pages 229-245, March.
    7. Michael Platzer & Thomas Reutterer, 2016. "Ticking Away the Moments: Timing Regularity Helps to Better Predict Customer Activity," Marketing Science, INFORMS, vol. 35(5), pages 779-799, September.

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