The impact of customer-specific marketing expenses on customer retention and customer profitability

We study the effects of customer-specific marketing expenses on customer retention and cus-tomer profitability in a business-to-business setting. Using data from a company providing hygiene services, we look at the impact of a type of expenses targeted at individual customer relationships: the offering of free equipment to customers (such as soap dispensers). The data allows tracking the activities performed in more than 4,500 customer relationships over a pe-riod of four years. Retention rates are higher for customers targeted with free equipment, but this effect results from an interaction with customer size. First-order dynamic panel data analyses show that the impact of targeted marketing expenses on customer dollar profit is positive for large customers, but there is no effect for smaller customers. Thus, targeted mar-keting expenses seem a tool for relationship maintenance rather than customer development: they help in retaining large customers that generate more profit, but they do not seem to work in developing new customers into larger, more profitable ones.