1.3
NBD-Dirichlet
A stochastic model that predicts, from category structure alone, every brand's expected penetration, purchase frequency and buyer overlap.
Goodhardt, Ehrenberg & Chatfield (1984)
What it does
Predicts what every brand's share, repeat rate and buyer overlap should be in a category, given only its size. Its real use is the residual: a brand that departs from the norm is doing something that actually needs explaining.
When it breaks
Assumptions fail with few players, high involvement, or one-off purchases. It also tells you nothing about why a deviation exists.
Case
Sharp and Sharp benchmarked Australia's Fly Buys, then the country's largest loyalty programme, against Dirichlet norms. They found only weak, patchy excess loyalty rather than the step-change claimed. The method became the template for auditing loyalty schemes against a model-predicted baseline.
Byron Sharp · do loyalty programs increase loyalty? ↗In the wild
Unchecked · not part of the tier
What people have written about this tool in the last twelve months. A machine found these and nobody has read them. Everything above this line was checked by hand.
Loading…