A Bivariate Timing Model of Customer Acquisition and Retention

Marketing Science, Vol. 27, No. 5, pp. 829-843, 2008

Posted: 8 May 2006 Last revised: 4 Apr 2012

See all articles by David A. Schweidel

David A. Schweidel

McDonough School of Business, Georgetown University

Peter Fader

University of Pennsylvania - Marketing Department

Eric Bradlow

University of Pennsylvania - Marketing Department

Date Written: June 14, 2007

Abstract

Two widely recognized components, central to the calculation of customer value, are acquisition and retention propensities. However, while extant research has incorporated such components into different types of models, limited work has investigated the kinds of associations that may exist between them. In this research, we focus on the relationship between a prospective customer's time until acquisition of a particular service and the subsequent duration for which he retains it, and examine the implications of this relationship on the value of prospects and customers.

To accomplish these tasks, we utilize a bivariate timing model to capture the relationship between acquisition and retention. Using a split-hazard model, we link the acquisition and retention processes in two distinct yet complimentary ways. First, we use the Sarmonov family of bivariate distributions to allow for correlations in the observed acquisition and retention times within a customer; next, we allow for differences across customers using latent classes for the parameters that govern the two processes. We then provide a demonstration of how the proposed methodology can be used to calculate the discounted expected value of a subscription based on the time of acquisition, and discuss possible applications of the modeling framework to problems such as customer targeting and resource allocation.

Keywords: Stochastic Models, Customer Relationship Management

Suggested Citation

Schweidel, David A. and Fader, Peter and Bradlow, Eric, A Bivariate Timing Model of Customer Acquisition and Retention (June 14, 2007). Marketing Science, Vol. 27, No. 5, pp. 829-843, 2008, Available at SSRN: https://ssrn.com/abstract=899665

David A. Schweidel (Contact Author)

McDonough School of Business, Georgetown University ( email )

Washington, DC 20057
United States

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Eric Bradlow

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-8255 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,669
PlumX Metrics