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Customer-Base Analysis in a Discrete-Time Noncontractual Setting

Author

Listed:
  • Peter S. Fader

    (The Wharton School of the University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Bruce G. S. Hardie

    (London Business School, London NW1 4SA, United Kingdom)

  • Jen Shang

    (School of Public and Environmental Affairs, Indiana University, Bloomington, Indiana 47405)

Abstract

Many businesses track repeat transactions on a discrete-time basis. These include (1) companies for whom transactions can only occur at fixed regular intervals, (2) firms that frequently associate transactions with specific events (e.g., a charity that records whether supporters respond to a particular appeal), and (3) organizations that choose to utilize discrete reporting periods even though the transactions can occur at any time. Furthermore, many of these businesses operate in a noncontractual setting, so they have a difficult time differentiating between those customers who have ended their relationship with the firm versus those who are in the midst of a long hiatus between transactions. We develop a model to predict future purchasing patterns for a customer base that can be described by these structural characteristics. Our beta-geometric/beta-Bernoulli (BG/BB) model captures both of the underlying behavioral processes (i.e., customers' purchasing while "alive" and time until each customer permanently "dies"). The model is easy to implement in a standard spreadsheet environment and yields relatively simple closed-form expressions for the expected number of future transactions conditional on past observed behavior (and other quantities of managerial interest). We apply this discrete-time analog of the well-known Pareto/NBD model to a data set on donations made by the supporters of a nonprofit organization located in the midwestern United States. Our analysis demonstrates the excellent ability of the BG/BB model to describe and predict the future behavior of a customer base.

Suggested Citation

  • Peter S. Fader & Bruce G. S. Hardie & Jen Shang, 2010. "Customer-Base Analysis in a Discrete-Time Noncontractual Setting," Marketing Science, INFORMS, vol. 29(6), pages 1086-1108, 11-12.
    • Handle: RePEc:inm:ormksc:v:29:y:2010:i:6:p:1086-1108
    DOI: 10.1287/mksc.1100.0580
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    References listed on IDEAS

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