e-CLV: a modelling approach for customer lifetime evaluation in e-commerce domains, with an application and case study for online auctions

Abstract

E-commerce companies understand that customers are their most important asset and that it is imperative to estimate the potential value of this asset. Hence, a model for calculating customer's value is essential in these domains. We describe a general modeling approach, based on Markov chain models, for calculating customer value in the e-commerce domain. This model extends existing models from the field of direct marketing, by taking into account a new set of variables required for evaluating customers value in an e-commerce environment. In addition, we present an algorithm for generating this model from historical data, as well as an application of this modeling approach for the creation of a model for online auctions. We also describe a case study that demonstrates how our model provides more accurate predictions than existing models regarding the future income generated by customers.