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Assessing the impact of derived behaviour information on financial customer attrition in the financial service industry

Assessing the impact of derived behaviour information on financial customer attrition in the financial service industry
Assessing the impact of derived behaviour information on financial customer attrition in the financial service industry
The value of the customer has been widely recognized in terms of financial planning and efficient resource allocation including the financial service industry. Previous studies have shown that directly observable information can be used in order to make reasonable predictions of customer attrition probabilities. However, these studies do not take full account of customer behavior information. In this paper, we demonstrate that efficient use of information can add value to financial services industry and improve the prediction of customer attrition. To achieve this, we apply an orthogonal polynomial approximation analysis to derive unobservable information, which is then used as explanatory variables in a probit–hazard rate model. Our results show that derived information can help our understanding of customer attrition behavior and give better predictions. We conclude that both researchers and the financial service industry should gather and use derived financial information in addition to directly observable information.
customer attrition, data mining, derived behaviour information, orthogonal polynomial approximation, probit-hazard model
0377-2217
624-633
Tang, L.L.
00660959-415d-4230-91fe-258e58ca12b1
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Fletcher, M.H.
6527acac-d567-4039-8e4f-622754931f6b
Marshall, A.
01d83f0c-55d3-439d-93ed-ee07950db3c4
Tang, L.L.
00660959-415d-4230-91fe-258e58ca12b1
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Fletcher, M.H.
6527acac-d567-4039-8e4f-622754931f6b
Marshall, A.
01d83f0c-55d3-439d-93ed-ee07950db3c4

Tang, L.L., Thomas, Lyn C., Fletcher, M.H. and Marshall, A. (2014) Assessing the impact of derived behaviour information on financial customer attrition in the financial service industry. European Journal of Operational Research, 236 (2), 624-633. (doi:10.1016/j.ejor.2014.01.004).

Record type: Article

Abstract

The value of the customer has been widely recognized in terms of financial planning and efficient resource allocation including the financial service industry. Previous studies have shown that directly observable information can be used in order to make reasonable predictions of customer attrition probabilities. However, these studies do not take full account of customer behavior information. In this paper, we demonstrate that efficient use of information can add value to financial services industry and improve the prediction of customer attrition. To achieve this, we apply an orthogonal polynomial approximation analysis to derive unobservable information, which is then used as explanatory variables in a probit–hazard rate model. Our results show that derived information can help our understanding of customer attrition behavior and give better predictions. We conclude that both researchers and the financial service industry should gather and use derived financial information in addition to directly observable information.

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More information

Accepted/In Press date: 3 January 2014
e-pub ahead of print date: 17 January 2014
Published date: 16 July 2014
Keywords: customer attrition, data mining, derived behaviour information, orthogonal polynomial approximation, probit-hazard model
Organisations: Centre of Excellence in Decision, Analytics & Risk Research

Identifiers

Local EPrints ID: 375182
URI: https://eprints.soton.ac.uk/id/eprint/375182
ISSN: 0377-2217
PURE UUID: 47bfd7b0-d934-48df-9964-55b1170e0408

Catalogue record

Date deposited: 16 Mar 2015 12:01
Last modified: 15 Jul 2019 21:27

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