80/50 Rule and Purchase Memory

Ok, here's one of the regression models I built to rank twelve-month buyers so that I could determine if the 80/50 rule holds or not:

• Future 12-Month Spend = -3.25 + 0.55*(12 Month Spend) + 0.15*(13-24 Month Spend) + 0.09*(25-36 Month Spend) + 0.07*(37-48 Month Spend).

I compare the coefficient for 0-12 month spend to the coefficient for 13-24 month demand.

• 0.55 for 0-12 month.
• 0.15 for 13-24 month.

What is the ratio?

• 0.15 / 0.55 = 27%.

I call this "Purchase Memory".

Purchase Memory is important if you are a "CRM" fan ... if you love loyalty programs and reactivating customers, you'll have success if "Purchase Memory" is above 40% in my experience.

Purchase Memory is an indirect indicator of "want" vs. "need". When the customer wants merchandise, the item is purchased and then the transaction is "forgotten".

When the customer needs the merchandise, there is "memory" and that is reflected in the coefficients in the regression model.