Statistical Methods in Customer Relationship Management

4.2 Repurchase or Not (Stay or Leave)

4.2.1 Will a Customer Repurchase?

Companies spend significant resources in acquiring potential customers and one of their biggest concerns is whether these newly acquired customers just make a first-time purchase and leave, or make subsequent purchases and stay with companies for an extended period of time. Repurchase or not is usually modeled as a binary outcome where either a repurchase occurs (1) or does not occur (0). The most commonly used method to model this binary outcome is logistic regression. Geoffrey (2006) built a logit model to predict who became an active customer using online activity and surfing behavior as explanatory variables. The author collected clickstream data to track each mouse-click of customers and to analyze customer online behavior. Lemon et al. [18] conducted a study in the television entertainment service subscription industry and estimated customers' keep (repurchase) or drop (churn) decisions. As the study was conducted in a monthly contractual setting, the behavior of the renewal of contract was directly observed and coded (0/1). These authors adopted logistic regression to model the decision of whether to remain in the service relationship as a function of expected future use and satisfaction with the service. Lewis [3] conducted two studies, one in the non-contractual setting of online retailing and the other in the contractual setting of newspaper subscription, to investigate the effects of acquisition ...