Berry

CHAPTER
12
Knowing When to Worry:
Hazard Functions and Survival
Analysis in Marketing
Hazards. Survival. These very terms conjure up scary images, whether a
shimmering-blue, ball-eating golf hazard or something a bit more frightful
from a Stephen King novel, a hatchet movie, or some reality television show.
Perhaps such dire associations explain why these techniques are not frequently
associated with marketing.
If so, this is a shame. Survival analysis, which is also called time-to-event
analysis, is nothing to worry about. Exactly the opposite: survival analysis is
very valuable for understanding customers. Although the roots and terminology
come from medical research and failure analysis in manufacturing, the
concepts are tailor made for marketing. Survival tells us when to start worrying
about customers doing something important, such as ending their relationship.
It tells us which factors are most correlated with the event. Hazards
and survival curves also provide snapshots of customers and their life cycles,
answering questions such as: “How much should we worry that this customer
is going to leave in the near future?” or “This customer has not made a purchase
recently; is it time to start worrying that the customer will not return?”
The survival approach is centered on the most important facet of customer
behavior: tenure. How long customers have been around provides a wealth of
information, especially when tied to particular business problems. How long
customers will remain customers in the future is a mystery, but a mystery that
past customer behavior can help illuminate. Almost every business recognizes
the value of customer loyalty. As we see later in this chapter, a guiding principle
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