Estimating the impact of interacting with sales representatives on customer-specific revenue and churn behavior

This paper uses transaction-level data from a firm in the High Technology sector to compare the revenue garnered from customers who purchase via sales representatives to that garnered from customers who purchase online. The interaction mode may be correlated with the customer’s unobserved valuation for the service, and this potential endogeneity is addressed using an instrumental variable. Specifically, the data indicate whether the customer’s details were recorded in the company’s information systems following an initial contact, such as the download of a free version from the company’s website. The availability of such leads facilitated representatives’ ability to contact customers, generating exogenous variation in the probability of interacting with a representative. Instrumental variable estimates indicate that such interaction lowers the total revenue garnered from a paying customer during the sample period. The primary driver of this result is a churn effect: customers who purchased online displayed a longer overall relationship with the firm, and were more likely to renew an expiring subscription. An alternative explanation, according to which representatives lowered revenues by reassuring customers regarding the adequacy of cheaper versions of the product, is not supported by the data.