Extending the BG/NBD: A simple model of purchases and complaints
van Oest,R.D. Knox,G.A.H.
van Oest,R.D.
Knox,G.A.H.
Abstract
Extant customer-base models like the beta geometric/negative binomial distribution (BG/NBD) predict future purchasing based on customers' observed purchase history. We extend the BG/NBD by adding an important non-transactional element that also drives future purchases: complaint history. Our model retains several desirable properties of the BG/NBD: it can be implemented in readily available software, and estimation requires only customer-specific statistics, rather than detailed transaction-sequence data. The likelihood function is closed-form, and managerially relevant metrics are obtained by drawing from beta and gamma densities and transforming these draws to a sample average. Based on more than two years of individual-level data from a major U.S. internet and catalog retailer, our model with complaints outperforms both the original BG/NBD and a modified version. Even though complaints are rare and non-transactional events, they lead to different substantive insights about customer purchasing and drop-out: customers purchase faster but also drop out much faster. Furthermore, there is more heterogeneity in drop-out rates following a purchase than a complaint.
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2011
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Research Projects
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van Oest, R D & Knox, G A H 2011, 'Extending the BG/NBD : A simple model of purchases and complaints', International Journal of Research in Marketing, vol. 28, no. 2, pp. 30-37. < http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8R-51S6X4G-2&_user=522558&_coverDate=03%2F31%2F2011&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1718219503&_rerunOrigin=google&_acct=C000026138&_version=1&_urlVersion=0&_userid=522558&md5=dd153631ae654884fec94bc7d638e9eb&searchtype=a >