TIME SERIES ANALYSIS: FORECASTING SALES PERIODS IN WHOLESALE SYSTEMS

The main goal of time series analysis is explaining the correlation and the main features of the data in chronological order by using appropriate statistical models. It is being used in various aspects of life and work, as well as in forecasting future product demands, service demands, etc. The most common type of time series data is the one whose observations are taken in equally distributed time intervals (daily, weekly, monthly, etc.). However, in this paper, we analyze a different kind of time series which represents product purchase moments. Thus, since there are not any regular observation periods, this irregular time series must be transformed in some way before traditional methods of analysis can be applied.  After the data transformation is complete, the next step is modeling the nonstationary time series using commonly known models such as ARIMA and PNBD, which have been chosen for their fairly easy and successful forecasting processes. The goal of this analysis is timely product advertising to a customer in order to increase sales.Unlike some other models that consider the relationship between two or more different phenomena, time series models, including ARIMA, Pareto/NBD and Poisson models, examine the impact of historical values of a single phenomenon on its present and future value. This approach enables the study of the behavior of a given phenomenon over time and produces good results, especially if a large amount of historical data is available

Ranking customers for marketing actions with a two-stage Bayesian cluster and Pareto/NBD models

Modelling customer behaviour to predict their future purchase frequency and value is crucial when selecting customers for marketing activities. The profitability of a customer and their risk of inactivity are two important factors in this selection process. These indicators can be obtained using the well-known Pareto/NBD model. Here we cluster customers based on their purchase frequency and value over a given period before applying the Pareto/NBD model to each cluster. This initial cluster model provides the customer purchase value and improves the predictive accuracy of the Pareto/NBD parameters by using similar individuals when fitting the data. Finally, taking the outputs from both models, the initial cluster and Pareto/NBD, we present some recommendations to classify customers into interpretable groups and facilitate their prioritisation for marketing activities. To illustrate the methodology, this paper uses a database with sales from a beauty products wholesaler.Peer ReviewedPostprint (published version

Towards Design Principles for Data-Driven Decision Making: An Action Design Research Project in the Maritime Industry

Data-driven decision making (DDD) refers to organizational decision-making practices that emphasize the use of data and statistical analysis instead of relying on human judgment only. Various empirical studies provide evidence for the value of DDD, both on individual decision maker level and the organizational level. Yet, the path from data to value is not always an easy one and various organizational and psychological factors mediate and moderate the translation of data-driven insights into better decisions and, subsequently, effective business actions. The current body of academic literature on DDD lacks prescriptive knowledge on how to successfully employ DDD in complex organizational settings. Against this background, this paper reports on an action design research study aimed at designing and implementing IT artifacts for DDD at one of the largest ship engine manufacturers in the world. Our main contribution is a set of design principles highlighting, besides decision quality, the importance of model comprehensibility, domain knowledge, and actionability of results

Profitable Retail Customer Identification Based on a Combined Prediction Strategy of Customer Lifetime Value

As a fundamental concept of customer relationship management, customer lifetime value (CLV) serves as a crucial metric to identify profitable retail customers. Various methods are available to predict CLV in different contexts. With the development of consumer big data, modern statistics and machine learning algorithms have been gradually adopted in CLV modeling. We introduce two machine learning algorithms—the gradient boosting decision tree (GBDT) and the random forest (RF)—in retail customer CLV modeling and compare their predictive performance with two classical models—the Pareto/NBD (HB) and the Pareto/GGG. To ensure CLV prediction and customer identification robustness, we combined the predictions of the four models to determine which customers are the most—or least—profitable. Using 43 weeks of customer transaction data from a large retailer in China, we predicted customer value in the future 20 weeks. The results show that the predictive performance of GBDT and RF is generally better than that of the Pareto/NBD (HB) and Pareto/GGG models. Because the predictions are not entirely consistent, we combine them to identify profitable and unprofitable customers

Comparative models in customer base analysis: parametric model and observation-driven model

This study conducts a dynamic rolling comparison between the Pareto/NBD model (parametric model) and machine learning algorithms (observation-driven models) in customer base analysis, which the literature has not comprehensively investigated before. The aim is to find the comparative edge of these two approaches under customer base analysis and to define the implementation timing of these two paradigms. This research utilizes Pareto/NBD (Abe) as representative of Buy-Till-You-Die (BTYD) models in order to compete with machine learning algorithms and presents the following results. (1) The parametric model wins in transaction frequency prediction, whereas it loses in inactivity prediction. (2) The BTYD model outperforms machine learning in inactivity prediction when the customer base is active, performs better in an inactive customer base when competing with Poisson regression, and wins in a short-term active customer base when competing with a neural network algorithm in transaction frequency prediction. (3) The parametric model benefits more from a short calibration length and a long holdout/target period, which exhibit uncertainty. (4) The covariate effect helps Pareto/NBD (Abe) gain a better predictive result. These findings assist in defining the comparative edge and implementation timing of these two approaches and are useful for modeling and business decision making

Comparative analysis of selected probabilistic customer lifetime value models in online shopping

The selection of a suitable customer lifetime value (CLV) model is a key issue for companies that are introducing a CLV managerial approach in their online B2C relationship stores. The online retail environment places CLV models on several specific assumptions, e.g. non-contractual relationship, continuous purchase anytime, variable-spending environment. The article focuses on empirical statistical analysis and predictive abilities of selected probabilistic CLV models that show very good results in an online retail environment compared to different model families. For comparison, eleven CLV models were selected. The comparison has been made to the online stores’ datasets from Central and Eastern Europe with annual revenues of hundreds of millions of euros and with almost 2.3 million customers. Probabilistic models have achieved overall good and consistent results on the majority of the studied transactional datasets, with BG/NBD and Pareto/NBD models that can be considered stable with significant lifts from the baseline Status quo model. Abe's variant of Pareto/NBD have underperformed multiple criterions and would not be fully useful for the studied datasets without further improvements. In the end, the authors discuss the deployment implications of selected CLV models and propose further issues for future research to address