Workshop Series: André Bonfrer
Abstract: A focus of database marketing is on predicting when customers decide to leave the company (i.e. "churn"). We argue this focus would be better placed on predicting prolonged periods of inactivity, or zero usage, which often precede churn and represent a behavioral regularity found across several contractual markets. We model customers' usage (consumption) paths, and whether they reach this threshold of zero usage, as realizations from a single continuous-time stochastic process. Our context is usage of a cellphone service. The model has two managerially important parameters, drift and volatility, and offers several advantages over existing methods. First, it can be calibrated at the individual level and before any zero usage is observed. Second, based on these parameters, the model provides unique insights into who managers should intervene with to prevent customer churn. A managerially appealing feature of our model is that it is also easily implementable in a platform such as Excel. These features make the proposed model useful as an early warning system for a service provider to guide policy on customer retention. Join our staff, students and alumni attending workshops presented by visiting academics on their area of research expertise. For further information please contact our Workshop Administrator.