Statistics Papers

Document Type

Journal Article

Date of this Version

2008

Publication Source

Marekting Science

Volume

27

Issue

5

Start Page

829

Last Page

843

DOI

10.1287/mksc.1070.0328

Abstract

Two widely recognized components, central to the calculation of customer value, are acquisition and retention propensities. However, while extant research has incorporated such components into different types of models, limited work has investigated the kinds of associations that may exist between them. In this research, we focus on the relationship between a prospective customer's time until acquisition of a particular service and the subsequent duration for which he retains it, and examine the implications of this relationship on the value of prospects and customers.

To accomplish these tasks, we use a bivariate timing model to capture the relationship between acquisition and retention. Using a split-hazard model, we link the acquisition and retention processes in two distinct yet complementary ways. First, we use the Sarmonov family of bivariate distributions to allow for correlations in the observed acquisition and retention times within a customer; next, we allow for differences across customers using latent classes for the parameters that govern the two processes. We then demonstrate how the proposed methodology can be used to calculate the discounted expected value of a subscription based on the time of acquisition, and discuss possible applications of the modeling framework to problems such as customer targeting and resource allocation.

Copyright/Permission Statement

Originally published in Marketing Science © 2008 INFORMS

This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mksc.1070.0328

Keywords

customer acquisition, customer retention, customer retention management, stochastic models

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Date Posted: 25 October 2018

This document has been peer reviewed.