Forecasting Repeat Sales at CDNOW: A Case Study

We conducted a modeling exercise in conjunction with the on-line music retailer CDNOW to develop a simple stochastic model of buyer behavior capable of forecasting medium-term aggregate CD purchasing by a cohort of new customers. We modeled weekly sales using a finite mixture of beta-geometric distributions with a separate time-varying component to cap-ture nonstationarity in repeat buying. The resulting model can easily be implemented within a standard spreadsheet environ-ment (for example, Microsoft Excel). It does a good job of de-scribing the underlying sales patterns and produces an excel-lent medium-term forecast. With the growth of e-commerce,many companies are facing chal-lenges in figuring out how to make effec-tive and efficient use of the detailed trans-action information that they are rapidly