Modeling Within- and Across-Customer Association in Lifetime Value with Copulas

N. Glady, A. Lemmens, C. Croux

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Abstract

Recent advances in linking Recency-Frequency-Monetary value (RFM) data to Customer Lifetime Value (CLV) in non-contractual settings rely on the assumption of independence between the transaction and spend processes. We propose to model jointly the inter- and intra-customer dependency between both processes using copulas, hereby accounting for the double correlation within and across customers. Applied to a unique data set of securities' transactions, we nd that modeling both associations enhances the accuracy of CLV predictions, thus improving customer valuation and selection tasks.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages40
Volume2010-103
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-103

Keywords

  • Association
  • Copula
  • Customer Lifetime Value
  • Across and Within Customers

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