Extending the BG/NBD: A Simple Model of Purchases and Complaints

International Journal of Research in Marketing, Forthcoming

31 Pages Posted: 19 Nov 2010

See all articles by Rutger van Oest

Rutger van Oest

Tilburg University - Tilburg University School of Economics and Management

George Knox

Tilburg University

Date Written: November 16, 2010

Abstract

Extant customer base models like the beta geometric/negative binomial distribution (BG/NBD) predict future purchasing based on the customer’s observed purchase history. We extend the BG/NBD by adding an important non-transactional element that drives future purchases: complaint history. Our model retains several desirable properties of the BG/NBD: it can be implemented in readily available software and estimation requires only sufficient statistics for each customer, rather than detailed transaction-sequence data. The likelihood function is closed-form and managerially relevant metrics are obtained by drawing from beta and gamma densities and transforming these draws to a sample average. Based on more than two years of individual-level data from a major U.S. internet and catalog retailer, our model with complaints outperforms both the original BG/NBD and a modified version. Even though complaints are rare and non-transactional events, they lead to different substantive insights about customer purchasing and drop-out: customers purchase faster, but in particular drop out much faster. Furthermore, there is more heterogeneity in drop-out following a purchase than a complaint.

Keywords: Complaints, Probability Models, Customer Base Analysis, Customer Lifetime Value

Suggested Citation

van Oest, Rutger and Knox, George, Extending the BG/NBD: A Simple Model of Purchases and Complaints (November 16, 2010). International Journal of Research in Marketing, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1711186

Rutger Van Oest (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

George Knox

Tilburg University ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 13 466 8778 (Phone)
+31 13 466 3219 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=g.knox

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