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Application of BG / NBD and Gamma-Gamma Models to Predict Customer Lifetime Value for Financial Institution

The prediction of customer lifetime value (CLV) within the non-contractual business circumstances is one of the challenging problems that several financial institutions are trying to solve. In this paper, we present our application of probabilistic models, namely Beta Geometric / Negative Binomial Distribution (BG/NBD) and Gamma-Gamma on transactional dataset obtained from one of the leading retail banks in Azerbaijan. The proposed model gets satisfactory results in predicting bank clients’ CLV, considering both the number and the amount of financial transactions made by them.