Starting Cold: The Power of Social Networks in Predicting Non-Contractual Customer Behavior

32 Pages Posted: 27 Jul 2017 Last revised: 27 Feb 2019

See all articles by Pantelis Loupos

Pantelis Loupos

University of California, Davis - Graduate School of Management

Alexandros Nathan

Northwestern University - Department of Industrial Engineering and Management Sciences

Moran Cerf

Northwestern University - Kellogg School of Management; New York University (NYU); UCLA Department of Neurosurgery

Date Written: February 24, 2019

Abstract

The last decade has seen a rapid emergence of non-contractual networked services. The standard approach in predicting future customer behavior in those services involves collecting data on a user's past purchase behavior, and building statistical models to extrapolate a user's actions into the future. However, this method fails in the case of newly acquired customers where you have little or no transactional data. In this work, we study the extent to which knowledge of a customer's social network can solve this “cold-start” problem and predict the following aspects of customer behavior: (1) activity, (2) transaction levels and (3) membership to the group of most frequent customers. We conduct a dynamic analysis on approximately one million users from the most popular peer-to-peer payment application, Venmo. Our models produce high quality forecasts and demonstrate that social networks lead to a significant boost in predictive performance primarily during the first month of a customer's lifetime. Finally, we characterize significant structural network differences between the top 10% and bottom 90% of most frequent customers immediately after joining the service.

Keywords: Dynamic Social Networks; Customer Behavior; Non-Contractual Settings; Cold-Start; Predictive Analytics

JEL Classification: M31

Suggested Citation

Loupos, Panteleimon and Nathan, Alexandros and Cerf, Moran, Starting Cold: The Power of Social Networks in Predicting Non-Contractual Customer Behavior (February 24, 2019). Available at SSRN: https://ssrn.com/abstract=3001978 or http://dx.doi.org/10.2139/ssrn.3001978

Panteleimon Loupos (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Alexandros Nathan

Northwestern University - Department of Industrial Engineering and Management Sciences

2145 Sheridan Rd
Evanston, IL 60208
United States

Moran Cerf

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

New York University (NYU)

40 W. 4th Street
Suite 900
New York, NY 10003-711
United States

UCLA Department of Neurosurgery

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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