Severity of dormancy model (SDM): Reckoning the customers before they quiescent

Abstract

The chapter proposes a severity of dormancy model (SDM), which allows the potential dormancy and the extent of dormancy to be modeled separately and is attempted for one of the key retail businesses for a large European business. The methodology developed in this chapter challenges the conventionalwisdomof building a dormancymodel using a logistic regression technique. It recognizes the existence of a group of potential dormant customer who would never go dormant under any circumstances. Most importantly, it not only recognizes this subset of customers, but also explicitly models the probability of the extent of dormancy to depend on customer attributes. Finally, the chapter successfully demonstrates the improvement achieved by the SDM over the conventional technique to capture the severity of dormancy.