Do Multichannel Customers Really Outperform? Retention, Revenues, and Multichannel Usage in a Contractual Setting.

Recent work in marketing suggests that customers shopping across multiple channels tend to be more profitable. However, we know very little about the key drivers of customer profitability in multi-channel shopping contexts. The main purpose of this study is to investigate whether customers who become multi-channel become more profitable as a result. To do so, we develop a model that jointly estimates retention, multi-channel shopping, and revenues. We propose a probit model for retention and multi-channel shopping and a standard right-censored Tobit regression for revenues. We control for selectivity bias through a recursive model that allows error terms between retention, multichannel shopping and revenues to be correlated. Data were obtained from a major European multi-channel retailer. This provides us with a cohort of new customers whose transactions were longitudinally tracked for four-and-a-half years. We find that multichannel shopping behavior increases both customer retention and revenues per customer among the customers who are retained. However, we also find evidence of a controversial role of multi-channel shopping behavior on retention; customers who become multichannel early are more likely to re-new their memberships