A Multiactivity Latent Attrition Model for Customer Base Analysis

Abstract

Customer base analysis is a key element in customer valuation and can provide guidance for decisions such as resource allocation. Yet extant models often focus on a single activity, such as purchases from a retailer or donations to a nonprofit organization. These models do not consider other ways that an individual may engage with an organization, such as purchasing in multiple brands or contributing user-generated content. In this research, we propose a framework to generalize extant models for customer base analysis to multiple activities. Using the data from a website that allows users to purchase digital content and/or post digital content at no charge, we develop a flexible “buy ‘til you die” model to empirically examine how the two activities are related. Compared with benchmarks, our model more accurately forecasts the future behavior for both types of activities. In addition to finding evidence of coincidence between the activities while customers are “alive,” we find that the latent attrition processes are related. This suggests that conducting one type of activity is informative of whether customers are still alive to conduct another type of activity and, consequently, affects inferences of customer value.

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