Emerald Management Reviews

Design/methodology/approach - Compares the two customer acquisition vehicles using vector autoregression (VAR) modelling, proposes an econometric time-series model to estimate the long-term effect of a customer acquisition on the performance of the company, provides an empirical illustration using data from an Internet start-up and validates the results with cohort-level analysis and customer-base analysis using disaggregated data.

Findings - The VAR model permits the measurement of the financial impact of an additional customer on the firm's performance, measuring how the result of marketing effort increases the customer equity of the firm. Asserts that the metric constructed from the impulse response function analysis to measure the intrinsic value of the typical customer coming from a specific acquisition channel captures not only the dynamic effects of a customer but also the customer's influence on other customers, thereby capturing the impact of an additional customer on the customer equity of the firm.

Research limitations/implications - Remarks that data on acquisition channels were self-reported, the model does not incorporate marketing spending, the number of log-ins are used as a proxy for the firm's profit and does not account for interactions among different channels. Recommends investigating the dynamics of WOM generation, using different time windows and studying additional industries to find empirically generalizable differences between the two customer acquisition channels.

Practical implications - If new customers need to be acquired quickly, contends that higher initial marketing budgets will be needed but higher retention budgets required later on because the firm will need to spend more on these MKT customers to preserve their long-term value to the firm whereas firms that can afford to build a customer base organically face a better long-term profitability outlook and can spend less on customer retention.

Originality/value - Develops a statistical model capable of measuring the long-term impact of customer acquisitions through different channels on customer equity growth.