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A DEA-based Approach to Customer Value Analysis

Author

Listed:
  • Laurens Cherchye
  • Bram De Rock
  • Bart Dierynck
  • P.J. Kerstens
  • Filip Roodhooft

Abstract

Firms have become increasingly customer centric, implying that customers, rather than products are treated as the most important asset of a firm. The switch to customer-centric strategies also implies that firms are collecting an enormous amount of customer-related data. The purpose of this paper is to propose a DEA-based methodology to determine the contribution of customer segments to firm value. We show the practical usefulness of our methodology through an application to Activity Based Costing (ABC) data collected from a large European telecom provider, which offers fixed telephone, mobile telephone, digital television and internet subscriptions. Our analysis reveals that the average cost reduction potential across all customer segments amounts to 1.26% of the total controllable costs, which represents approximately EUR 5 million when expressed in monetary terms. We also document substantial variation in the cost reduction potential across customer segments.

Suggested Citation

  • Laurens Cherchye & Bram De Rock & Bart Dierynck & P.J. Kerstens & Filip Roodhooft, 2021. "A DEA-based Approach to Customer Value Analysis," Working Papers ECARES 2021-19, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/331121
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    References listed on IDEAS

    as
    1. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2008. "Analyzing Cost-Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology," Operations Research, INFORMS, vol. 56(1), pages 204-221, February.
    2. Laurens Cherchye & Bram De Rock & Bart Dierynck & Filip Roodhooft & Jeroen Sabbe, 2013. "Opening the “Black Box” of Efficiency Measurement: Input Allocation in Multioutput Settings," Operations Research, INFORMS, vol. 61(5), pages 1148-1165, October.
    3. Cook, Wade D. & Seiford, Larry M., 2009. "Data envelopment analysis (DEA) - Thirty years on," European Journal of Operational Research, Elsevier, vol. 192(1), pages 1-17, January.
    4. Cherchye, Laurens & Rock, Bram De & Walheer, Barnabé, 2015. "Multi-output efficiency with good and bad outputs," European Journal of Operational Research, Elsevier, vol. 240(3), pages 872-881.
    5. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    6. Ruggiero, John, 1996. "On the measurement of technical efficiency in the public sector," European Journal of Operational Research, Elsevier, vol. 90(3), pages 553-565, May.
    7. Glady, Nicolas & Baesens, Bart & Croux, Christophe, 2009. "Modeling churn using customer lifetime value," European Journal of Operational Research, Elsevier, vol. 197(1), pages 402-411, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    data envelopment analysis; customer value; multi-output effciency; ABC systems;
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