How Many Customers Does a Retail Chain Have?
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The knowledge of the number of customers is the pillar of retail business analytics. In our setting, we assume that a portion of customers is monitored and easily counted due to the loyalty program while the rest is not monitored. The behavior of customers in both groups may significantly differ making the estimation of the number of unmonitored customers a non-trivial task. We identify shopping patterns of several customer segments which allows us to estimate the distribution of customers without the loyalty card. For this purpose, we utilize the least squares and maximum likelihood methods. In the case of prior knowledge of the customer distribution, we utilize the maximum a posteriori method. In a simulation study, we find that the least squares estimator is the most robust method. In an empirical study of a drugstore chain, we illustrate the applicability of the proposed approach in practice. The actual number of customers estimated by the proposed method is 1.28 times higher than the number suggested by the naive estimate assuming the constant customer distribution. The proposed method can also be utilized to determine penetration of the loyalty program in the individual customer segments.
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