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Implications of minimum contract durations on customer retention

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  • Jan Becker
  • Martin Spann
  • Timo Schulze

Abstract

Customer retention is a major driver of customer lifetime value and is thus a key performance metric in marketing management. Consequently, companies try to retain customers by offering contracts with minimum contract durations (MCD). Using behavioral, psychometric, and advertising data for a large sample of DSL customers, the authors study the impact of minimum contract durations on actual customer churn behavior. The analyses demonstrate that subscriptions with minimum contract durations do indeed help companies to successfully retain customers. The effect is impaired though, as companies typically (must) provide incentives to convince customers to commit to those contracts. We find that incentives attract customers that either cannot or should not be retained and hence require companies to carefully apply both MCD and incentives. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jan Becker & Martin Spann & Timo Schulze, 2015. "Implications of minimum contract durations on customer retention," Marketing Letters, Springer, vol. 26(4), pages 579-592, December.
    • Handle: RePEc:kap:mktlet:v:26:y:2015:i:4:p:579-592
    DOI: 10.1007/s11002-014-9293-2
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    3. Bray, J. & De Silva Kanakaratne, M. & Dragouni, M. & Douglas, J., 2021. "Thinking inside the box: An empirical exploration of subscription retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
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    5. Lily (Xuehui) Gao & Evert Haan & Iguácel Melero-Polo & F. Javier Sese, 2023. "Winning your customers’ minds and hearts: Disentangling the effects of lock-in and affective customer experience on retention," Journal of the Academy of Marketing Science, Springer, vol. 51(2), pages 334-371, March.

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