Incorporation of customer incoming process into customer base analysis

Abstract

Customer base analysis has been widely used in the field of marketing to understand customer transaction patterns associated with a certain firm. However, the model developed in previous research analyzes customer transaction patterns and customer lifetime values only for the customers who have been observed so far, which means it lacks careful consideration on potential customers. This paper attempts to incorporate customer incoming process into conventional customer base analysis to take account of transactions which will be made by potential customers. The proposed model was firstly tested by simulation for its estimation and forecast accuracy. Based on favorable results from the simulation analysis, empirical analysis was conducted using real-world transaction data. As expected, sales associated with existing customers gradually decreased and sales associated with potential customers gradually increased. Sales forecast exhibits mild forecasting error which can be attributed to insufficient data size and external shocks. This integrated model is expected to broaden the scope of customer base analysis and serve as a solid ground for further research.