Open Access: Ranking customers for marketing actions with a two-stage Bayesian cluster and Pareto/NBD models

Each week, we select a recently published Open Access article to feature. This week’s article comes from Applied Stochastic Models in Business and Industry and proposes a new methodology for predicting the purchase frequency of customers in order to apply this information to marketing activities.

The article’s abstract is given below, with the full article available to read here.

Puig-de-Dou, IGonzález Ibáñez, DPuig, XRanking customers for marketing actions with a two-stage Bayesian cluster and Pareto/NBD modelsAppl Stochastic Models Bus Ind20221– 11. doi:10.1002/asmb.2677
Modelling customer behaviour to predict their future purchase frequency and value is crucial when selecting customers for marketing activities. The profitability of a customer and their risk of inactivity are two important factors in this selection process. These indicators can be obtained using the well-known Pareto/NBD model. Here we cluster customers based on their purchase frequency and value over a given period before applying the Pareto/NBD model to each cluster. This initial cluster model provides the customer purchase value and improves the predictive accuracy of the Pareto/NBD parameters by using similar individuals when fitting the data. Finally, taking the outputs from both models, the initial cluster and Pareto/NBD, we present some recommendations to classify customers into interpretable groups and facilitate their prioritisation for marketing activities. To illustrate the methodology, this paper uses a database with sales from a beauty products wholesaler.
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