Optimal Decision-Making and the Value of Weather Forecasts Information: A Case of CRM in a Korean Resort

Abstract

This paper presents a method to estimate and analyze the economic value of weather forecasts for CRM decision-making problems in a leisure industry. Value is calculated in terms of customer's satisfaction returned from the user's decision under the specific payoff structure, which is represented by a customer's utility ratio model. The decision is determined as a function of the customer's utility patterns and the characteristics of forecast information. The resulting value score (VS) curve shows the scaled economic values relative to the value of a perfect forecast, specified by a function of the profit-loss ratios for different decision makers. The proposed evaluation method based on the profit/loss ratio model and the VS is verified by applying site-specific probability and deterministic forecasts, each of which is generated from the Korea and China Meteorological Administrations (KMA and CMA). The application results show that the proposed VS method can help decision makers choose the optimal decision strategy for specific customers with various utility patterns.