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Assessing and exploiting the profit function by modeling the net impact of targeted marketing

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  • W. BUCKINX
  • D. VAN DEN POEL

    ()

Abstract

The success of a direct marketing campaign is driven by the ability of companies to estimate customers’ future contribution to their profitability. Especially when considering that in retailing companies are wasting resources when targeting customers who will make purchases even in case they would not receive a mailing. We present an advanced profit evaluation, which rates customers for the net impact of a campaign on their buying behavior. Moreover, in contrast to current practices and theory, we model each part of the profit function to improve the accuracy of expected customer value. We employ logistic regression and multiple linear regression to estimate future purchase probabilities and customer expenditures. Variables of different types are considered and a variable selection technique is used to avoid overfitting. To validate our findings, we implemented the method into the mailing system of a European retailer. Our results are of major importance for direct marketing managers, since they make the company’s total profit increase by 5 per cent. This result can be attributed to both a reduction of the optimal mailing depth by 65 per cent, which shows that current procedures lead to systematic ‘overmailing’, and a modified ranking of the customers in the segmentation list.

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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 05/330.

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Length: 35 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:rug:rugwps:05/330

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  1. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration.
  2. G. Poels & A. Maes & F. Gailly, 2005. "User Attitudes towards Pattern-Based Enterprise Information Models: A Replicated Experiment with REA Diagrams," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/315, Ghent University, Faculty of Economics and Business Administration.
  3. B. Merlevede & K. Schoors, 2005. "How to Catch Foreign Fish? FDI and Privatisation in EU Accession Countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/309, Ghent University, Faculty of Economics and Business Administration.
  4. A. Maes & G. Poels & F. Gailly & R. Paemeleire, 2005. "Measuring User Beliefs and Attitudes towards Conceptual Models: A Factor and Structural Equation Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/311, Ghent University, Faculty of Economics and Business Administration.
  5. G. Lanine & R. Vander Vennet, 2005. "Failure prediction in the Russian bank sector with logit and trait recognition models," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/329, Ghent University, Faculty of Economics and Business Administration.
  6. D. Vantomme & M. Geuens & S. Dewitte, 2005. "How to Portray Men and Women in Advertisements? Explicit and Implicit Evaluations of Ads Depicting Different Gender Roles," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/319, Ghent University, Faculty of Economics and Business Administration.
  7. M. Vanhoucke & D. Debels, 2005. "The Discrete Time/Cost Trade-Off Problem Under Various Assumptions Exact And Heuristic Procedures," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/314, Ghent University, Faculty of Economics and Business Administration.
  8. M. Buelens & D. Bouckenooghe & D. De Clercq & A. Willem, 2005. "An Assessment of Validity in Small Business and Entrepreneurship Research," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/328, Ghent University, Faculty of Economics and Business Administration.
  9. B. Maenhout & M. Vanhoucke, 2005. "An Electromagnetic Meta-Heuristic for the Nurse Scheduling Problem," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/316, Ghent University, Faculty of Economics and Business Administration.
  10. B. Weijters & M. Geuens & S. Dewitte, 2005. "Evaluation of age-related labels by senior citizens," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/320, Ghent University, Faculty of Economics and Business Administration.
  11. Vermeir,I. & Geuens, M., 2006. "Need for closure and youngsters' leisure time preferences," Vlerick Leuven Gent Management School Working Paper Series 2005-36, Vlerick Leuven Gent Management School.
  12. W. Buckinx & G. Verstraeten & D. Van Den Poel, 2005. "Predicting Customer Loyalty Using The Internal Transactional Database," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/324, Ghent University, Faculty of Economics and Business Administration.
  13. Baeyens, K. & Vanacker, T. & Manigart, M., 2005. "Venture capitalists' selection process: the case of biotechnology proposals," Vlerick Leuven Gent Management School Working Paper Series 2005-17, Vlerick Leuven Gent Management School.
  14. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
  15. M. Knockaert & A. Lockett & B. Clarysse & M. Wright, 2005. "Do human capital and fund characteristics drive follow-up behaviour of early stage high tech VCs?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/325, Ghent University, Faculty of Economics and Business Administration.
  16. Claeys, Sophie & Lanine, Gleb & Schoors, Koen, 2005. "Bank supervision Russian style: Rules versus enforcement and tacit objectives," BOFIT Discussion Papers 10/2005, Bank of Finland, Institute for Economies in Transition.
  17. S. Vandevoorde & M. Vanhoucke, 2005. "A Comparison of Different Project Duration Forecasting Methods using Earned Value Metrics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/312, Ghent University, Faculty of Economics and Business Administration.
  18. V. Vansteeger, 2005. "The current state of accounting harmonization: impediments to and benefits from harmonization," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/322, Ghent University, Faculty of Economics and Business Administration.
  19. P. Everaert & G. Sarens, 2005. "Outsourcing bij Vlaamse Ondernemingen: een Exploratief Onderzoek," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/306, Ghent University, Faculty of Economics and Business Administration.
  20. G. Poels & F. Gailly & A. Maes & R. Paemeleire, 2005. "Object Class or Association Class? Testing the User Effect on Cardinality Interpretation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/323, Ghent University, Faculty of Economics and Business Administration.
  21. A. Schollaert & D. Van De Gaer, 2005. "Boycotts, power politics or trust building: how to prevent conflict?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/308, Ghent University, Faculty of Economics and Business Administration.
  22. A. Heirman & B. Clarysse, 2005. "The imprinting effect of initial resources and market strategy on the early growth path of start-Ups," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/310, Ghent University, Faculty of Economics and Business Administration.
  23. M. Vanhoucke & S. Vandevoorde, 2005. "A simulation and evaluation of earned value metrics to forecast the project duration," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/317, Ghent University, Faculty of Economics and Business Administration.
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Cited by:
  1. M. Dossche & G. Everaert, 2005. "Measuring inflation persistence: a structural time series approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/340, Ghent University, Faculty of Economics and Business Administration.
  2. W. Bruggeman & P. Everaert & S. R. Anderson & Y. Levant, 2005. "Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/332, Ghent University, Faculty of Economics and Business Administration.
  3. B. Maenhout & M. Vanhoucke, 2005. "New Computational Results for the Nurse Scheduling Problem: A Scatter Search Algorithm," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/341, Ghent University, Faculty of Economics and Business Administration.
  4. J. Lepoutre & N. A. Dentchev & A. Heene, 2005. "Dealing With Uncertainties When Governing CSR Policies," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/337, Ghent University, Faculty of Economics and Business Administration.
  5. E. Labro & M. Vanhoucke, 2005. "A simulation analysis of interactions between errors in costing system design," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/333, Ghent University, Faculty of Economics and Business Administration.
  6. M. Vanhoucke & B. Maenhout, 2005. "Characterisation and Generation of Nurse Scheduling Problem Instances," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/339, Ghent University, Faculty of Economics and Business Administration.
  7. N. Geeroms & P. Van Kenhove & W. Verbeke, 2005. "Health Advertising to promote Fruit and Vegetable Intake: Application of need-related Health Audience Segmentation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/336, Ghent University, Faculty of Economics and Business Administration.
  8. L. Pozzi, 2005. "Income Uncertainty and Aggregate Consumption," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/334, Ghent University, Faculty of Economics and Business Administration.
  9. Ooghe, H. & Spaenjers, C. & Pieter vandermoere, 2005. "Business failure prediction: simple-intuitive models versus statistical models," Vlerick Leuven Gent Management School Working Paper Series 2005-22, Vlerick Leuven Gent Management School.
  10. J. Albrecht & M. Neyt & T. Verbeke, 2005. "Bureaucratisation and the growth of health care expenditures in Europe," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/335, Ghent University, Faculty of Economics and Business Administration.
  11. P. Windels & J. Christiaens, 2005. "Management Reform in Flemish Local Authorities: Testing the Institutional Framework," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/331, Ghent University, Faculty of Economics and Business Administration.

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