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The paper focuses on modeling longitudinal customer behavior and develops a dynamic programming (DP) to show how customer transaction database may be used to guide marketing decisions such as pricing and the design of customer reward programs. Dynamic programming is not as a tool to marketing decisions making in this research but rather as a description of consumer behavior. The results show that the method provides a means for evaluating the effectiveness of marketing strategy, for example, customer reward programs. Moreover, the findings from the model estimation indicate that reward program can actually increase the customer’s purchase level and stimulate the repeat purchase behavior.

Application of Dynamic Programming Method to Marketing Decisions Based on Customer Database