A service effort allocation model for assessing customer lifetime value in service marketing

Purpose – The purpose of this paper is to apply customer lifetime value models to assess the overall value of the service encounter and to establish implications that such an assessment has for managing customer relationships under a fixed‐size salesforce. Design/methodology/approach – Using a specific relationship between customer servicing activities and the buying rhythms of customers, an analytical model for assessing the overall value of a service encounter is developed. Findings – A stochastic parameter is identified, characterizing the level of quality to compute the long‐term value of a given customer and stochastic ordering properties to determine the relative value of different customers. Research limitations/implications – The implications discussed are analytical to help service managers shaping their thought process in decision making. Future research can empirically test the model proposed. Practical implications – The theorem specifies the optimal solutions to determine: how much capacity should be committed to a given customer; and how to choose a customer in the first place. These are important and useful tools for managers in making their managerial decisions in service marketing. Originality/value – A general model of resource allocation is provided, under which those seminal models such as CALLPLAN, DETAILER are special cases. This is particularly valuable as key account management has become more important in globally operated businesses.