Predicting Customer Behaviour with Propensity Modeling

A Step-By-Step Guide on How to Build a Propensity Model

One of my connections on LinkedIn told me he was working on a ‘customer propensity model’—this was not the first time I was hearing of this, but I never actually worked on one before. Given my natural tendency to get my fingers dirty (no, not like that) I decided to give it a shot, and I’m going to break down the rudimentaries of it for you.

First of all, What is a Propensity Model?

A propensity model is a statistical model that predicts the likelihood of a particular behavior or event happening in the future using past data. What do we mean by behavior here? — Customer Behavior.

Customer Behavior

Customer behavior is things like clicking on a marketing email or ignoring it, looking at products but not making a purchase, liking, sharing, or commenting on a brand’s post, checking product reviews before buying something, switching to a premium plan, canceling a subscription, and the list goes on!

Anything that a customer does, from the smallest click to a bigger action like making a purchase, are all data and can be used by businesses to understand what influences a consumer to make a decision. It’s absolutely nothing like stalking.