CRM and Customer Portfolio Management for E-Tailers

"Don't put all your eggs in one basket" is common wisdom with respect to financial portfolio theory. The configuration of customer portfolios with regard to appropriate risk and return measures, however, is generally an accidental occurrence based on a number of separated loyalty or acquisition initiatives rather than a deliberate planning process. In this contribution, we propose to use portfolio selection theory to identify the optimal configuration of a customer portfolio. Specifically, we look at two broad customer segments: transaction- and relationship-oriented customers. E-tailers are of special interest, since the target-oriented acquisition and servicing of specific customer seems to be more easily achievable due the new means of communication. A first evaluation based on customer lifetime value is realized with a publicly accessible set of empirical data from the online-retailer CDNow.