Chapter 6 Estimation techniques

This chapter explains the different methods used to model a portfolio of customers as well as their related risk of attrition and the overall value of the portfolio. In a first part, clustering techniques are implemented to identify segments of customers based on services and account variables. Then, survival models are fitted to estimate each customer’s survival in the firm’s portfolio. The selected model can also be used to assess the effects of each variable on the risk of churn. Finally, we answer the study’s problematic by computing an estimated value of the portfolio. The latter is calculated using a corporate formula and takes customers’ monthly fees and survival probabilities as inputs. The estimated portfolio value is not cost-adjusted as there is no information on consumers’ costs in the data set.