Managing Customer Relationship Activities:
How Multiple Communication Tools Influence Enrollment And Usage
Decisions Of Services
February 2004
Working Paper No: RBS-MKT-2004-37
This work cannot be cited without the authors' permission
Patrali Chatterjee and Suman Basuroy
Abstract
Firms are increasingly focusing on improving customer profitability which
necessitates balancing acquisition and relationship maintenance costs and revenues
generated by each customer. Empirical studies of customer acquisition generally divide a
population of prospects into purchasers and non-purchasers, and analyze the reasons for
purchase or non-purchase at a point in time. In reality, a purchase decision is not a oneoff static decision rather it involves a dynamic process in which a prospective customer
progresses through a hierarchy of buyer-readiness stages starting from awareness,
interest, offer evaluation, and finally purchase. As firms seek ways to manage their new
customer acquisition process, understanding the dynamics of provider and customer
interaction during each of the stages of the acquisition process becomes a key priority. In
this research, a dynamic model for a service enrollment process is suggested in which
prospective consumers move from awareness to purchase (or enrollment as a member).
The primary contribution of this research is an understanding of how information
presented by the provider using multiple communication vehicles changes consumer’s
perception of expected future usage of the service and the value of the offer during the
enrollment process. Further we examine the effects of exposure to information on usage
and repurchase intention at the end of the first year of membership. The characteristics of
the consumer, the service offer and the role of communication tools in conveying the
value of the offer are considered important in explaining enrollment behavior and usage
of the service after enrollment. The results have managerial implications for the potential
impact of communication tools on short-term and long-run (upto at least one year)
success of customer acquisition campaigns.
We applied our framework to the customer acquisition process for a membership
shopping services firm. Firms selling high-value membership shopping services use a
wide variety of advertising media and personalized sales communication tools to target,
attract and induce consumers to enroll in their programs. The enrollment process
typically involves several steps as companies recognize the benefits of using a multiplevehicle, multiple stage integrated marketing communication campaign to acquire
customers. Since service consumption is highly personal and difficult to comprehend
until directly experienced, information provided by the firm using various marketing
communication tools (telemarketers, salespeople, direct mail, videos and service
demonstration or trial) play an important role in creating expectations of the value of the
service.
Analyses of a sample of 1311 households confirmed that a simple classification of
consumers as members and non-members was inadequate to understand the enrollment
process. Rather a multistage enrollment process in which consumers moved from
awareness of the offer to enrollment to usage and re-enrollment intention at the end of the
first year was more appropriate. The sets of factors that significantly influenced decisions
to stay in the enrollment process, enroll and then to use it and re-enroll or discontinue
their membership at the end of the first year were different. The sets of significant factors
influencing enrollment decision also differed depending on whether enrollment was
defined as a binary variable (enroll vs. drop-out) or as a truncated continuous variable
with dropouts having a zero value and enrolled members having different positive values.