Statistical Methods in Customer Relationship Management

6.2 Customer Churn

Researchers have a strong interest in the causes of customer churn or switching behaviors. In the mobile telephony industry, Kim and Yoon [1] adopted a binomial logit model to investigate the causes for customers switching carriers. The dependent variable of the model recorded the churning behavior (1 for switching, 0 for staying). These authors assumed that customers switch carriers because the utility of churning is greater than no churning. The utility can be expressed as

(6.1)

where denotes service attributes and denotes individual-specific characteristics, and

(6.2)

The probability of the nth subscriber to churn can be expressed as

(6.3)

Since the unobserved part, , could be identically and independently distributed (i.i.d.) following a logistic distribution, a binomial logit model is suitable to model the utility and the probability of churning. The model is expressed ...