Affiliation:
1. Wharton School, University of Pennsylvania
2. London Business School
3. Catalina Health Resource
Abstract
The authors present a new model that links the well-known RFM (recency, frequency, and monetary value) paradigm with customer lifetime value (CLV). Although previous researchers have made a conceptual link, none has presented a formal model with a well-grounded behavioral ”story.” Key to this analysis is the notion of ”iso-value” curves, which enable the grouping of individual customers who have different purchasing histories but similar future valuations. Iso-value curves make it easy to visualize the interactions and trade-offs among the RFM measures and CLV. The stochastic model is based on the Pareto/NBD framework to capture the flow of transactions over time and a gamma-gamma submodel for spend per transaction. The authors conduct several holdout tests to demonstrate the validity of the model's underlying components and then use it to estimate the total CLV for a cohort of new customers of the online music site CDNOW. Finally, the authors discuss broader issues and opportunities in the application of this model in actual practice.
Subject
Marketing,Economics and Econometrics,Business and International Management
Cited by
379 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献