Modeling and application of customer lifetime value in online retail

Abstract

This article provides an empirical statistical analysis and discussion of the predictive abilities of selected customer lifetime value (CLV) models that could be used in online shopping within e-commerce business settings. The comparison of CLV predictive abilities, using selected evaluation metrics, is made on selected CLV models: Extended Pareto/NBD model (EP/NBD), Markov chain model and Status Quo model. The article uses six online store datasets with annual revenues in the order of tens of millions of euros for the comparison. The EP/NBD model has outperformed other selected models in a majority of evaluation metrics and can be considered good and stable for non-contractual relations in online shopping. The implications for the deployment of selected CLV models in practice, as well as suggestions for future research, are also discussed.