Statistical Methods in Customer Relationship Management

4.5 Cross-buying

Cross-selling is the most common technique companies use to increase the repeat purchase incidence, quantity, and revenues to companies. After companies have built a certain level of loyalty with existing customers, these customers are more likely to cross-buy from the company. Verhoef and Donkers [5] studied the effect of acquisition channels on cross-buying. The acquisition channels examined included mass media, direct marketing, the Internet, personal selling, intermediaries, and word of mouth. For customers who were retained, cross-buying was coded as a binary variable. These authors modeled cross-buying in a probit model and acquisition channels were included as dummy variables.

4.5.1 Empirical Example: Cross-buying

Another key question we want to answer with regard to customer retention is whether we can determine which customers have the highest likelihood of cross-buying in multiple categories. To do this we first need to know which current customers actually purchased in multiple categories when they made a purchase. In the dataset provided for this chapter we have a variable Crossbuy which identifies how many categories of products a customer purchased in a given time period. We also provide a set of drivers which are likely to help explain a customer's decision to cross-buy. At the end of this example you should be able to do the following:

1. Identify the drivers of customer cross-buying behavior.

2. Interpret the parameter estimates from the cross-buying ...