AbstractVirtual advisors often increase sales for those customers who find such online advice to be convenient and helpful. However, other customers take a more active role in their purchase decisions and prefer more detailed data. In general, we expect that websites are more preferred and increase sales if their characteristics (e.g., more detailed data) match customers' cognitive styles (e.g., more analytic). “Morphing” involves automatically matching the basic “look and feel” of a website, not just the content, to cognitive styles. We infer cognitive styles from clickstream data with Bayesian updating. We then balance exploration (learning how morphing affects purchase probabilities) with exploitation (maximizing short-term sales) by solving a dynamic program (partially observable Markov decision process). The solution is made feasible in real time with expected Gittins indices. We apply the Bayesian updating and dynamic programming to an experimental BT Group (formerly British Telecom) website using data from 835 priming respondents. If we had perfect information on cognitive styles, the optimal “morph” assignments would increase purchase intentions by 21%. When cognitive styles are partially observable, dynamic programming does almost as well—purchase intentions can increase by almost 20%. If implemented system-wide, such increases represent approximately $80 million in additional revenue.
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Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 28 (2009)
Issue (Month): 2 (03-04)
Internet marketing; cognitive styles; dynamic programming; Bayesian methods; clickstream analysis; automated marketing; website design; telecommunications;
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- John Hauser, 2011. "A marketing science perspective on recognition-based heuristics (and the fast-and-frugal paradigm)," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(5), pages 396-408, July.
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