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A modified Pareto/NBD approach for predicting customer lifetime value

Record type: Conference or Workshop Item (Paper)

Valuing customers is a central issue for any commercial activity. The customer lifetime value (CLV) is the discounted value of the future profits that this customer yields to the company. In order to compute the CLV, one needs to predict the future number of transactions a customer will make and the profit of these transactions. With the Pareto/NBD model, the future number of transactions of a customer can be predicted, and the CLV is then computed as a discounted product between this number and the expected profit per transaction. Usually, the number of transactions and the future profits per transaction are estimated separately. This study proposes an alternative. We show that the dependence between the number of transactions and their profitability can be used to increase the accuracy of the prediction of the CLV. This is illustrated with a new empirical case from the retail banking sector.

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Citation

Glady, N., Baesens, B. and Croux, C. (2007) A modified Pareto/NBD approach for predicting customer lifetime value At Statistics for Data Mining, Learning and Knowledge (IASC 07), Portugal. 30 Aug - 01 Sep 2007.

More information

Published date: 2007
Venue - Dates: Statistics for Data Mining, Learning and Knowledge (IASC 07), Portugal, 2007-08-30 - 2007-09-01
Organisations: Management

Identifiers

Local EPrints ID: 51708
URI: http://eprints.soton.ac.uk/id/eprint/51708
PURE UUID: 8d46647d-34f9-436d-aad7-c3e28d8e71e0

Catalogue record

Date deposited: 01 Sep 2008
Last modified: 17 Jul 2017 14:48

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Contributors

Author: N. Glady
Author: B. Baesens
Author: C. Croux

University divisions


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