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"An Individual Level RF Analysis based on Consumer Behavior Theory: A Hierarchical Bayes Framework on the Pareto/NBD Model"(in Japanese)

Makoto Abe
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Makoto Abe: Faculty of Economics, University of Tokyo

No CIRJE-J-188, CIRJE J-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This research extends a Pareto/NBD model of customer-base analysis using a hierarchical Bayesian (HB) framework to suit today's customized marketing. The proposed HB model presumes three tried and tested assumptions of Pareto/NBD models: (1) a Poisson purchase process, (2) a memoryless dropout process (i.e., constant hazard rate), and (3) heterogeneity across customers, while relaxing the independence assumption of the purchase and dropout rates and incorporating customer characteristics as covariates. The model also provides useful output for CRM, such as a customer-specific lifetime and survival rate, as by-products of the MCMC estimation. Using two different types of databases --- music CD for e-commerce and FSP data for a department store, the HB model is compared against the benchmark Pareto/NBD model. The study demonstrates that recency-frequency data, in conjunction with customer behavior and characteristics, can provide important insights into direct marketing issues, such as the demographic profile of best customers and whether long-life customers spend more.

Pages: 30 pages
Date: 2007-11
New Economics Papers: this item is included in nep-mkt
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