Detecting customer defections: an application of continuous duration models

The considerable increase of business competition in the Portuguese fixed telecommunications indus-try for the last decades has given rise to a phenomenon of customer defection, which has serious con-sequences for the business financial performance and, therefore, for the economy. As such, research-ers have recognised the importance of an in-depth study of customer defection in different industries and geographic locations. This study aims to understand and predict customer lifetime in a contrac-tual setting in order to improve the practice of customer portfolio management. A duration model is developed to understand and predict the residential customer defection in the fixed telecommunica-tions industry in Portugal. The models are developed by using large-scale data from an internal data-base of a Portuguese company which presents bundled offers of ADSL, fixed line telephone, pay-TV and home-video. The model is estimated with a large number of covariates, which includes customer's basic information, demographics, churn flag, customer historical information about usage, billing, subscription, credit, and other. The results of this study are very useful to the computation of the cus-tomer lifetime value.

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Survival Models ,

Customer Churn ,

Customer Management ,