Modeling Purchasing Behavior with Sudden "Death": A Flexible Customer Lifetime Model

Albert C. Bemmaor () and Nicolas Glady ()
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Albert C. Bemmaor: ESSEC Business School, 95021 Cergy-Pontoise Cedex, France
Nicolas Glady: ESSEC Business School, 95021, Cergy-Pontoise Cedex, France

Management Science, 2012, vol. 58, issue 5, 1012-1021

Abstract: This study proposes a new customer lifetime model: the gamma/Gompertz distribution (G/G). The advantage of this model relative to the well-known Pareto distribution is twofold: (i) its probability density function can exhibit a mode at zero or an interior mode, and (ii) it can be skewed to the right or to the left. We combine the G/G with a negative binomial distribution (NBD) and obtain the moments of the distribution of the number of transactions over (0, T ] and ( T , T + T * ]. Out of six data sets, the G/G/NBD model provides a notable improvement in the log-likelihood over the Pareto/NBD model in four data sets. It can indicate substantial differences in expected residual lifetimes compared to the Pareto/NBD and induce a retention rather than acquisition policy. On the average, the G/G/NBD exhibits slightly better forecasts of the mean number of transactions than the Pareto/NBD. This paper was accepted by Pradeep Chintagunta, marketing.

Keywords: buyer behavior; mixture models; catalog retailing; Gompertz distribution (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:58:y:2012:i:5:p:1012-1021

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