The Value of Purchase History Data in Target Marketing
AbstractAn important aspect of marketing practice is the targeting of consumer segments for differential promotional activity. The premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information. The increased availability of individual consumer panel data open the possibility of direct targeting of individual households. The goal of this paper is to assess the information content of various information sets available for direct marketing purposes. Information on the consumer is obtained from the current and past purchase history as well as demographic characteristics. We consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment. Short of this complete purchase history, we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables. Proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes. We develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics. We couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets. The couponing problem allows us to place a monetary value on the information sets. Our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories. Even rather short purchase histories can produce a net gain in revenue from target couponing which is 2.5 times the gain from blanket couponing. The most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons. Surprisingly, even the information contained in observing one purchase occasion boasts net couponing revenue by 50% more than that which would be gained by the blanket strategy. This result, coupled with increased competitive pressures, will force targeted marketing strategies to become much more prevalent in the future than they are today.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 15 (1996)
Issue (Month): 4 ()
target marketing; coupons; heterogeneity; Bayesian hierarchical models;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.