Abstract:This paper outlines a general methodology for the segmentation of customers according to lifetime value and prediction of their future value segments based on demographic and behavioural features. Not only have few previous scientifi c studies dealt with this question using nonaggregate single-customer data, but also we address the problem using decision trees, which has rarely been done before. Applying our method to customer data from a major European airline produces predictions not only for longterm,middle-term, and short-term customers but also for prospects whose value is diffi cult to predict because of limited information. Overall, our fi ndings provide marketing managers a means to optimise company customer equity and maximise returns on marketing in the long run.
INTRODUCTION
Outline
Concept and prediction of customer lifetime value
DECISION TREES
Introduction
The model
A CASE STUDY
Data
Value-based segmentation
Prediction of the value segment
RESULTS OF THE MODEL ESTIMATION
Long-term customers
Middle-term customers
New customers
Prospects
MANAGERIAL IMPLICATIONS
References
