Knowing When to Worry: Using Survival Analysis to Understand Customers
Hazards. Survival. The very terms conjure up scary images, whether a shimmering blue, ball-eating golf hazard or something a bit more frightful from a Stephen King novel, a hatchet movie, or some reality television show. Perhaps such dire associations explain why these techniques have not been traditionally associated with marketing.
If so, this is a shame. Survival analysis, which is also called time-to-event analysis, is nothing to worry about. It's exactly the opposite: Survival analysis is very valuable for understanding customers. Although the roots and terminology come from medical research and failure analysis in manufacturing, the concepts are tailor-made for marketing. Survival tells you when to start worrying about customers doing something important, such as stopping or making another purchase. It identifies which factors are most correlated with the event. Hazards and survival curves also provide snapshots of customers and their life cycles, answering questions such as, “How much should we worry that this customer is going to leave in the near future?” or “This customer has not made a purchase recently; is it time to start worrying that the customer will not return?”
Survival analysis takes advantage of the most important facet of customer behavior: tenure. How long customers have been around provides a wealth of information, especially when tied to particular business problems. How long ...