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Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity

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  • Juha Karvanen
  • Ari Rantanen
  • Lasse Luoma

Abstract

We present a Bayesian framework for estimating the customer lifetime value (CLV) and the customer equity (CE) based on the purchasing behavior deducible from the market surveys on customer purchasing behavior. The proposed framework systematically addresses the challenges faced when the future value of customers is estimated based on survey data. The scarcity of the survey data and the sampling variance are countered by utilizing the prior information and quantifying the uncertainty of the CE and CLV estimates by posterior distributions. Furthermore, information on the purchase behavior of the customers of competitors available in the survey data is integrated to the framework. The introduced approach is directly applicable in the domains where a customer relationship can be thought to be monogamous. As an example on the use of the framework, we analyze a consumer survey on mobile phones carried out in Finland in February 2013. The survey data contains consumer given information on the current and previous brand of the phone and the times of the last two purchases.

Suggested Citation

  • Juha Karvanen & Ari Rantanen & Lasse Luoma, 2013. "Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity," Papers 1304.5380, arXiv.org, revised May 2014.
  • Handle: RePEc:arx:papers:1304.5380
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    References listed on IDEAS

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    1. V. Kumar & Rajkumar Venkatesan & Tim Bohling & Denise Beckmann, 2008. "—The Power of CLV: Managing Customer Lifetime Value at IBM," Marketing Science, INFORMS, vol. 27(4), pages 585-599, 07-08.
    2. Sturtz, Sibylle & Ligges, Uwe & Gelman, Andrew, 2005. "R2WinBUGS: A Package for Running WinBUGS from R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 12(i03).
    3. repec:eee:joinma:v:25:y:2011:i:1:p:1-14 is not listed on IDEAS
    4. Peter S. Fader & Bruce G. S. Hardie & Ka Lok Lee, 2005. "“Counting Your Customers” the Easy Way: An Alternative to the Pareto/NBD Model," Marketing Science, INFORMS, vol. 24(2), pages 275-284, August.
    5. Peter S. Fader & Bruce G. S. Hardie, 2010. "Customer-Base Valuation in a Contractual Setting: The Perils of Ignoring Heterogeneity," Marketing Science, INFORMS, vol. 29(1), pages 85-93, 01-02.
    6. Hans H.Bauer & Maik Hammerschmidt & Matthias Braehler, 2004. "The Customer Lifetime Value Concept And Its Contribution To Corporate Valuation," Microeconomics 0402006, EconWPA.
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