Examining Selected Theoretical Distributions of Life Expectancy to Analyse Customer Loyalty Durability. The Case of a European Retail Bank

Dominik Kubacki; Robert Kubacki

doi:10.18778/0208-6018.349.05

Authors

Dominik Kubacki University of Łódź, Faculty of Economics and Sociology, Department of Banking http://orcid.org/0000-0003-2389-0168
Robert Kubacki

DOI:

https://doi.org/10.18778/0208-6018.349.05

Keywords:

survival analysis, customer lifetime value, banking, parametric models, Kaplan–Meier estimator

Abstract

One of the key elements related to calculating Customer Lifetime Value is to estimate the duration of a client’s relationship with a bank in the future. This can be done using survival analysis. The aim of the article is to examine which of the known distributions used in survival analysis (Weibull, Exponential, Gamma, Log‑normal) best describes the churn phenomenon of a bank’s clients. If the aim is to estimate the distribution according to which certain units (bank customers) survive and the factors that cause this are not so important, then parametric models can be used. Estimation of survival function parameters is faster than estimating a full Cox model with a properly selected set of explanatory variables. The authors used censored data from a retail bank for the study. The article also draws attention to the most common problems related to preparing data for survival analysis.

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