For an enterprise facing with a drastically changing environment such as introducing a new competition paradigm, customer retention strategies based on customer lifetime value analysis are very important. However, the lifetime value models containing simple retention rate have limitations and constraints because the retention rate is sustained by not only customer satisfaction factors but other switching barriers. In this study, as a major component of a lifetime value model, simple retention rate is substituted by the function of customer loyalty. The total customer loyalty is composed of two kinds of sub-loyalties, 'true long-term loyalty' and 'false loyalty'. The true long -term loyalty stems from customer satisfaction factors. Instead the false loyalty is caused by switching barriers such as limited competition, strong regulations, proprietary technologies, too strong short-term loyalty programs etc.
Through an empirical analysis of 207 business customers, the following significant results are found. First, the correlation between the overall loyalty and the true long-term loyalty is higher than that between the overall loyalty and the false loyalty. Second, the false loyalty and the true long-term loyalty have a strongly negative correlation. Third, the higher the true long-term loyalty of customer segmentation is, the higher the overall loyalty. Fourth, the influence of the demographic factors on the overall loyalty is very weak. Finally, the proxy variables measuring customer loyalty such as repurchase intention, purchase amount and referrals are not sufficient by themselves in a limited competition environment. It is message to develop measurement variables of loyalty related with retained competition constraints.
From the empirical analysis of the lifetime value of the 207 customers, some important findings are observed. First, the core part of customer retention should be the segmentation of the highest customer value. Second, in the limited competitive telephone market, there are very distinctive two segments. One is the very low valued segment with very high true long-term loyalty, the other the very high valued segment with very low true long-term loyalty. Third, the existing dominant carrier could get a very high return on investment for the loyalty programs.
The following areas are suggested for further studies. First, loyalty index similar to satisfaction index needs to be developed. Second, it is a meaningful study to develop more sophisticate measurement variables of false loyalty to cover other markets. Third, applying the results of this study to other competition-limited domestic markets would provide an insight into how to keep the customers.
