George Knox

Incorporating Direct Marketing Activity into Latent Attrition Models

When defection is unobserved, latent attrition models provide useful insights about customer behavior and accurate forecasts of customer value. Yet extant models ignore direct marketing efforts. Response models incorporate the effects of direct marketing, but because they ignore latent attrition, they may lead firms to waste resources on inactive customers. We propose a parsimonious model that allows direct marketing to impact three relevant behaviors in latent attrition models---the frequency with which customers conduct transactions, the size of the transactions, and the duration for which customers remain active. Our model also accounts for how the organization targets its direct marketing across individuals and over time. Using donation data from a nonprofit organization, we find that direct marketing increases donation incidence for active donors. However, our analysis also shows that direct marketing has the potential to shorten the length of a donors relationship. We find that our proposed model offers superior predictive performance compared with models that ignore the impact of direct marketing activity or latent attrition. We demonstrate the managerial applicability of our modeling approach by estimating the impact of direct marketing on donation behavior and identifying those donors most likely to conduct transactions in the future.

Customer Complaints and Recovery Effectiveness: A Customer Base Approach

Although customer complaints are a well-studied aspect of business, no study has measured the impact of actual complaints and recoveries on subsequent customer purchasing. The authors develop a customer base model to investigate the effectiveness of recovery in preventing customer churn. They calibrate it on panel data that track actual purchases, complaints, and recoveries for 20,000 new customers of an Internet and catalog retailer over 2.5 years. Complaints are associated with a substantial increase in the probability that the customer stops buying, but the size of the increase depends on prior customer experiences: prior purchases mitigate the effect, and their impact is long-lasting, whereas prior complaints exacerbate the effect, but their impact is short-lived. Thus, unless the customer leaves the company after a complaint, or a second failure occurs shortly after the first, the relationship quickly returns to normal. Recovery counters the effect of the complaint but, in almost all cases, does not entirely offset it. The authors use simulation to translate the results to financial impact and discuss implications for researchers and managers.

Changing Their Tune: How Consumers’ Adoption of Online Streaming Affects Music Consumption and Discovery

Constructing a unique panel data set of individual consumers’ listening behavior on digital music platforms, e.g., iTunes and Spotify, we study the effect of adopting streaming services on individual music consumption. Achieving quasi-randomization via a matching procedure, we estimate the changes in quantity, variety and new music discovery after adopting a streaming service like Spotify. Adopting streaming services leads to substantial increases in quantity, variety in any measure, plays of new content, and discovery of new favorites. It is also associated with a large drop in concentration. We document that adopting Spotify leads to more discovery of highly valued music. Relative to using iTunes, adopting Spotify raises repeat listening for consumers’ best new discoveries, although - consistently with the marginal variety on Spotify being free - lowers repeat listening for the average new discovery relative to non-adopters. We discuss the implications for platforms, labels, artists, and consumers.