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Modeling the Evolution of Customers' Service Portfolios

50 Pages Posted: 14 May 2007 Last revised: 4 Apr 2012

David A. Schweidel

McDonough School of Business, Georgetown University

Eric Bradlow

University of Pennsylvania - Marketing Department

Peter Fader

University of Pennsylvania - Marketing Department

Date Written: December 25, 2008

Abstract

Understanding how customers' service portfolios evolve over the course of their relationship can provide multi-service firms, such as telecommunication and financial service providers, with useful guidance for managerial issues such as customer valuation and targeting. Complicating matters, however, is the fact that ownership of individual services may be related to each other. Additionally, customers may be heterogeneous in terms of the portfolios they choose and the sequence of adoption/retention decisions they make over time. In this research, we propose an integrated multivariate choice and duration model that nests extant single-product models to capture co-purchasing behavior and underlying choice dynamics.

Using a hidden Markov model, we uncover latent relationship states through which customers may pass during their relationship with the firm, allowing us to understand how subscription patterns evolve over a customer's tenure. The proposed model provides a framework within which multi-service providers can assess the value of their customers. We also demonstrate how the proposed modeling framework leverages information from the full sequence of subscription decisions to identify those customers who are most at risk for terminating their relationship both in the next time period and at the time of their next portfolio change.

Keywords: Bayesian Modeling, Choice Models, Customer Relationship Management, Hidden Markov Models

Suggested Citation

Schweidel, David A. and Bradlow, Eric and Fader, Peter, Modeling the Evolution of Customers' Service Portfolios (December 25, 2008). Available at SSRN: https://ssrn.com/abstract=985639 or http://dx.doi.org/10.2139/ssrn.985639

David A. Schweidel (Contact Author)

McDonough School of Business, Georgetown University ( email )

Washington, DC 20057
United States

Eric Bradlow

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-8255 (Phone)

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

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