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 capture nonstationarity in repeat buying. The resulting model can easily be implemented within a standard spreadsheet environment (for example, Microsoft Excel). It does a good job of describing the underlying sales patterns and produces an excellent medium-term forecast.