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Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity

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  • Juha Karvanen
  • Ari Rantanen
  • Lasse Luoma

Abstract

We present a Bayesian framework for estimating the customer lifetime value (CLV) and the customer equity (CE) based on the purchasing behavior deducible from the market surveys on customer purchasing behavior. The proposed framework systematically addresses the challenges faced when the future value of customers is estimated based on survey data. The scarcity of the survey data and the sampling variance are countered by utilizing the prior information and quantifying the uncertainty of the CE and CLV estimates by posterior distributions. Furthermore, information on the purchase behavior of the customers of competitors available in the survey data is integrated to the framework. The introduced approach is directly applicable in the domains where a customer relationship can be thought to be monogamous. As an example on the use of the framework, we analyze a consumer survey on mobile phones carried out in Finland in February 2013. The survey data contains consumer given information on the current and previous brand of the phone and the times of the last two purchases. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Juha Karvanen & Ari Rantanen & Lasse Luoma, 2014. "Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity," Quantitative Marketing and Economics (QME), Springer, vol. 12(3), pages 305-329, September.
    • Handle: RePEc:kap:qmktec:v:12:y:2014:i:3:p:305-329
    DOI: 10.1007/s11129-014-9148-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Bayesian estimation; Brand switching; Customer equity; Customer lifetime value; Survey; M31; C11; C81; C34; C83;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods

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