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Predicting Partial Customer Churn Using Markov for Discrimination for Modeling First Purchase Sequences

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  • V. L. MIGUÉIS
  • D. VAN DEN POEL
  • A.S. CAMANHO
  • JOAO FALCAO E CUNHA

Abstract

Currently, in order to remain competitive companies are adopting customer centered strategies and consequently customer relationship management (CRM) is gaining increasing importance. In this context, customer retention deserves particular attention. This paper proposes a model for partial churn detection in the retail grocery sector that includes as a predictor the similarity of the products' first purchase sequence with churner and non-churner sequences. The sequence of first purchase events is modeled using Markov for discrimination. Two classification techniques are used in the empirical study: logistic regression and random forests. A real sample of approximately 95.000 new customers is analyzed taken from the data warehouse of a European retailing company. The empirical results reveal the relevance of the inclusion of a products' sequence likelihood in partial churn prediction models, as well as the supremacy of logistic regression when compared with random forests.

Suggested Citation

  • V. L. Miguéis & D. Van Den Poel & A.S. Camanho & Joao Falcao E Cunha, 2012. "Predicting Partial Customer Churn Using Markov for Discrimination for Modeling First Purchase Sequences," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/806, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:12/806
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    Cited by:

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    2. Łapczyński Mariusz, 2014. "Hybrid C&RT-Logit Models In Churn Analysis," Folia Oeconomica Stetinensia, Sciendo, vol. 14(2), pages 37-52, December.
    3. Uroš Droftina & Mitja Å tular & Andrej Košir, 2015. "A diffusion model for churn prediction based on sociometric theory," Advances in Data Analysis and Classification, Springer;German Classification Society - Gesellschaft für Klassifikation (GfKl);Japanese Classification Society (JCS);Classification and Data Analysis Group of the Italian Statistical Society (CLADAG);International Federation of Classification Societies (IFCS), vol. 9(3), pages 341-365, September.
    4. Katerina Shapoval & Thomas Setzer, 2018. "Next-Purchase Prediction Using Projections of Discounted Purchasing Sequences," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 60(2), pages 151-166, April.
    5. Miguel Angel de la Llave Montiel & Fernando López, 2020. "Spatial models for online retail churn: Evidence from an online grocery delivery service in Madrid," Papers in Regional Science, Wiley Blackwell, vol. 99(6), pages 1643-1665, December.

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