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This model was created by Bruce Hardie of UPenn.

He has an example of how to run the model in Excel here:

The model does a good job of predicting future behavior because it matches up well with holdout data (back testing).

This model is better than other models because
- It requires a small amount of data, only RF
- The model has demonstrated good validation on lots of data
- It can be generalized to lots of situations
- Easily implemented in Excel

We will pass in a matrix of values which are derived from the underlying transaction data. Every unique combo of recency and frequency and the count of customers with those values.

The BG/BB model requires the same information as the Pareto/NBD model, but as it models discrete transaction opportunities, this information can be condensed into a recency-frequency matrix. A recency-frequency matrix contains a row for every recency/frequency combination in the given time period, and each row contains the number of customers with that recency/frequency combination. BTYD - Pareto NBD

1. - Week 3 slides, Fader

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