Statistical Methods in Customer Relationship Management

3.3 Number of Newly Acquired Customers and Initial Order Quantity

Companies will always want to acquire as many customers as possible and acquire those customers who will bring large orders for profit maximization. Companies usually perform certain marketing activities to encourage newly acquire customers to buy more the first time and in subsequent purchases. The operation of shipping fees, such as free shipping for large orders or normal shipping fees charged for small orders, is one common way to influence the purchase behavior of potential customers. Lewis [2] examined the data from an online retailing company which experimented with multiple shipping fee schedules for 502 days, including large order size incentives and penalties. The author wanted to examine the effects shipping fees on order incidence, order size, shipping revenues, and customer acquisition simultaneously. Thus, Lewis developed a system of linear regressions to account for the possible correlation among the dependent variables. Among these regressions equations, the author modeled the number of newly acquired customers and the average order size for new customers in the following two equations:

(3.19)

where denotes the number of newly acquired customers, denote the explanatory variables, including shipping, ...