The Buy Till You Die (BTYD) class of
statistical model
A statistical model is a mathematical model that embodies a set of statistical assumptions concerning the generation of Sample (statistics), sample data (and similar data from a larger Statistical population, population). A statistical model repre ...
s are designed to capture the behavioral characteristics of non-contractual customers, or when the company is not able to directly observe when a customer stops being a customer of a brand.
The goal is typically to model and forecast
customer lifetime value
In marketing, customer lifetime value (CLV or often CLTV), lifetime customer value (LCV), or life-time value (LTV) is a prognostication of the net profit
contributed to the whole future relationship with a customer. The prediction model can have ...
.
BTYD models all jointly model two processes: (1) a repeat purchase process, that explains how frequently customers make purchases while they are still "alive"; and (2) a dropout process, which models how likely a customer is to churn in any given time period.
Common versions of the BTYD model include:
* The Pareto/NBD model, which models the dropout process as a
Pareto Type II distribution and the purchase frequency process as a
negative binomial distribution
In probability theory and statistics, the negative binomial distribution, also called a Pascal distribution, is a discrete probability distribution that models the number of failures in a sequence of independent and identically distributed Berno ...
* The Beta-Geometric/NBD model, which models the dropout process, as a
geometric distribution
In probability theory and statistics, the geometric distribution is either one of two discrete probability distributions:
* The probability distribution of the number X of Bernoulli trials needed to get one success, supported on \mathbb = \;
* T ...
with a
beta mixing distribution, and models the purchase frequency process as a
negative binomial distribution
In probability theory and statistics, the negative binomial distribution, also called a Pascal distribution, is a discrete probability distribution that models the number of failures in a sequence of independent and identically distributed Berno ...
.
The concept was firstly introduced in 1987, in an article in ''
Management Science
Management science (or managerial science) is a wide and interdisciplinary study of solving complex problems and making strategic decisions as it pertains to institutions, corporations, governments and other types of organizational entities. It is ...
'',
which concerns on counting and identifying those customers who are still active.
References
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Consumer behaviour