Researchers from the United States published new research in the INFORMS journal Marketing Science (Editor's note: The source of this research is INFORMS), which sheds light on just how much it may take for the companies to profitably "steal" customers from their competitors. Frequently, the managers focus on customer acquisition cost when deciding if to poach customers from the competitor. To that extent, the managers may downplay the other factors, such as future cost to serve of poached customers. The researchers demonstrate that switchers can generate as much as 21 percent higher cost to serve as equivalent own customers. This brings an important caveat when designing marketing strategy.
The study to be published in the July edition of the INFORMS journal Marketing Science is titled "Skimming from the Bottom: Empirical Evidence of Adverse Selection When Poaching Customers," and is authored by Przemyslaw Jeziorski from the University of California at Berkeley, Elena Krasnokutskaya from Johns Hopkins University, and Olivia Ceccarini.
Study - Authors - Conclusions - Car - Insurance
The study authors arrived at their conclusions after analyzing the Portuguese car insurance industry, which is an established, multi-billion-dollar market. They selected the insurance industry because they knew that it would present measurable factors that are similar to several other service industries, such as credit markets and retail.
They were able to use individual-level data on insurance claims from a leading Portuguese auto insurer which showed that in the insurance industry, the average customer who switches from one insurer to another generates a 32 percent higher volume of liability claims than the average customer who does not switch.
Further, they found that commonly employed actuarial screening mechanisms can only partially alleviate...
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