Which are more impactful, profitable customers or profitable products? An empirical study
(A2020-64094)

AUTHORS

Huong Nguyen, Stockholm School of Economics

KEYWORDS

retailer profitability; RFM; market basket analysis

ABSTRACT

As discussed in the literature, shopping behaviors and cross-buying are two of the key drivers in customer lifetime value. This study examines how customer segments and the product categories impact the retailer's profitability (gross margin) in multiple regression models. Results show that the best customers, identified by Recency-Frequency-Monetary clustering, are potentially more impactful comparing with the products frequently bought together, defined by Market Basket Analysis. The findings can be leveraged to identify customers with most potential and implemented with corresponding strategies. Retailers are suggested to focus on their customer relationship management system and their best customers, especially households with high frequency. The method can be flexibly replicated with other point-of-sales data sets to uncover local patterns.

REFERENCES

I am grateful to my supervisors, Sara Rosengren, Rickard Sandberg and Emelie Fröberg, for the their advices and insightful comments.