From Amazon to Apple: Modeling Online Retail Sales, Purchase Incidence, and Visit Behavior

<div><p>In this study, we propose a multivariate stochastic model for Web site visit duration, page views, purchase incidence, and the sale amount for online retailers. The model is constructed by composition from carefully selected distributions and involves copula components. It allows for the strong nonlinear relationships between the sales and visit variables to be explored in detail, and can be used to construct sales predictions. The model is readily estimated using maximum likelihood, making it an attractive choice in practice given the large sample sizes that are commonplace in online retail studies. We examine a number of top-ranked U.S. online retailers, and find that the visit duration and the number of pages viewed are both related to sales, but in very different ways for different products. Using Bayesian methodology, we show how the model can be extended to a finite mixture model to account for consumer heterogeneity via latent household segmentation. The model can also be adjusted to accommodate a more accurate analysis of online retailers like apple.com that sell products at a very limited number of price points. In a validation study across a range of different Web sites, we find that the purchase incidence and sales amount are both forecast more accurately using our model, when compared to regression, probit regression, a popular data-mining method, and a survival model employed previously in an online retail study. Supplementary materials for this article are available online.</p>