1. Predicting partial customer churn using Markov for discrimination for modeling first purchase sequences
- Author
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Ana S. Camanho, João Falcão e Cunha, Dirk Van den Poel, and Vera L. Miguéis
- Subjects
Statistics and Probability ,Customer retention ,Markov chain ,Computer science ,business.industry ,Applied Mathematics ,05 social sciences ,Sample (statistics) ,Context (language use) ,02 engineering and technology ,Customer relationship management ,computer.software_genre ,Computer Science Applications ,Random forest ,Empirical research ,0502 economics and business ,0202 electrical engineering, electronic engineering, information engineering ,Econometrics ,050211 marketing ,020201 artificial intelligence & image processing ,Data mining ,business ,computer ,Predictive modelling - Abstract
Currently, in order to remain competitive companies are adopting customer centered strategies and consequently customer relationship management 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.
- Published
- 2012
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