Customer Evolution in Sales Channel Migration

We propose an overall representation of a customer’s channel decision process investigating the process by which new customers develop channel preferences. We also study how their response to marketing communication evolves. We assume that a newly acquired customer may rely on some simplifying channel decision strategies, requiring limited learning, or her channel decisions can be described by a ‘trial’ model, which evolves to a ‘post-trial’ model as he or she learns her preferences. The trial and post-trial decision processes are each described by different multinomial logit choice models, and the evolution from the trial to post-trial model is determined by a customer-level geometric distribution that captures the time it takes for the customer to make the transition. We utilize data for a cohort of new customers of a book retailer who sells, by a subscription plan, in three channels: retail store, the Internet, and via catalog. The model is estimated using Bayesian methods that allow for cross-customer heterogeneity and individual level parameters estimates. Our results show that marketing communications’ effect strongly differs in the trial and post-trial stages. A large segment of customers stay with their initial channel decision-strategy, but a considerable segment switch channel decision process over time. These customers start out without well-established channel preferences and are quite susceptible to marketing, but they switch to a post-trial choice process that is much more preference-based and less influenced by marketing.