03-27-2016 03:36 PM
I am in the process of building a customer attrition model on retail customers of saving account for a bank. The target variable i am defining consists of two components - 1. Hard Attrition : Bank loses the account completely. 2. 80% balance drop within the performance period of last 12 months. My question - Can i take balance variables as independent variables? By the balance variables, i mean - Last Balance, Average balance in 3 months, in 6 months, 9 months and 12 months. %Change Balance in last 3 months, 6 months, 9 and 12 months. My concern - These variables indirectly seem to be a part of dependent variable. Am i correct? Or i am thinking in wrong direction? I have seen these balance variables as important predictors in the model.
03-27-2016 08:38 PM
The balance variables will by definition be related to the variable so in my opinion they won't be good predictors. Obviously if someone has a major drop they're likely to be in the 80% group...that being said, time series analysis does allow for this type of modelling so you may want to look into some time series methods of analysis.
04-07-2016 09:25 AM