Who Wants What’s Hot? Popularity Profiles and Customer Value

Online content aggregators such as DVD-rental companies offer their customers a wide selection of products, ranging from the most popular to the most obscure. Although there has been a sharp debate about the demand for niche products in the “long tail” of an aggregator’s library, leading to questions around optimal strategies, research has not linked the consumption of popular and obscure offerings to customers’ value to the firm. We propose that firms can use information on “who wants what’s hot” (and what’s not) to assess which customers are the most valuable and which are at the greatest risk for defecting. Using data from an online DVD-rental company, we present a joint model of the time until customers begin service, their consumption of titles of varying degrees of popularity, and the duration for which they maintain service. We find that customers’ “popularity profiles,” which characterize how choices are distributed across popular and unpopular offerings, are associated with customers’ service usage frequencies and discounted expected tenures, both of which reflect customers’ value to the service provider. We demonstrate how firms can employ information on the set of titles consumed to update expectations of customers’ remaining values and likelihoods of canceling service.