Date of this Version
Today’s managers are very interested in predicting the future purchasing patterns of their customers, which can then serve as an input into “lifetime value” calculations. Among the models that provide such capabilities, the Pareto/NBD “counting your customers” framework proposed by Schmittlein et al. (1987) is highly regarded. However, despite the respect it has earned, it has proven to be a difficult model to implement, particularly because of computational challenges associated with parameter estimation.
We develop a new model, the beta-geometric/NBD (BG/NBD), which represents a slight variation in the behavioral “story” associated with the Pareto/NBD but is vastly easier to implement. We show, for instance, how its parameters can be obtained quite easily in Microsoft Excel. The two models yield very similar results in a wide variety of purchasing environments, leading us to suggest that the BG/NBD could be viewed as an attractive alternative to the Pareto/NBD in most applications.
Originally published in Marketing Science © 2005 INFORMS
This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mksc.1040.0098
customer base analysis, repeat buying, Pareto/NBD, probability models, forecasting, lifetime value
Fader, P. S., Hardie, B. G., & Lee, K. (2005). "Counting Your Customers" the Easy Way: An Alternative to the Pareto/NBD Model. Marketing Science, 24 (2), 275-284. http://dx.doi.org/10.1287/mksc.1040.0098
Business Administration, Management, and Operations Commons, Business Analytics Commons, Business Intelligence Commons, Management Information Systems Commons, Management Sciences and Quantitative Methods Commons, Marketing Commons
Date Posted: 15 June 2018
This document has been peer reviewed.