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Comparison of customer response models

  • David Olson


  • Qing Cao


  • Ching Gu


  • Donhee Lee


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    Segmentation of customers by likelihood of repeating business is a very important tool in marketing management. A number of approaches have been developed to support this activity. This article reviews basic recency, frequency, and monetary (RFM) methods on a set of data involving the sale of beef products. Variants of RFM are demonstrated. Classical data mining techniques of logistic regression, decision trees, and neural networks are also demonstrated. Results indicate a spectrum of tradeoffs. RFM methods are simpler, but less accurate. Considerations of balancing cell sizes as well as compressing data are examined. Both balancing expected cell densities as well as compressing RFM variables into a value function were found to provide more accurate models. Data mining algorithms were all found to provide a noticeable increase in predictive accuracy. Relative tradeoffs among these data mining algorithms in the context of customer segmentation are discussed. Copyright Springer-Verlag 2009

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    Article provided by Springer in its journal Service Business.

    Volume (Year): 3 (2009)
    Issue (Month): 2 (June)
    Pages: 117-130

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    Handle: RePEc:spr:svcbiz:v:3:y:2009:i:2:p:117-130
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    1. Baesens, Bart & Viaene, Stijn & Van den Poel, Dirk & Vanthienen, Jan & Dedene, Guido, 2002. "Bayesian neural network learning for repeat purchase modelling in direct marketing," European Journal of Operational Research, Elsevier, vol. 138(1), pages 191-211, April.
    2. Geng Cui & Man Leung Wong & Hon-Kwong Lui, 2006. "Machine Learning for Direct Marketing Response Models: Bayesian Networks with Evolutionary Programming," Management Science, INFORMS, vol. 52(4), pages 597-612, April.
    3. Crone, Sven F. & Lessmann, Stefan & Stahlbock, Robert, 2006. "The impact of preprocessing on data mining: An evaluation of classifier sensitivity in direct marketing," European Journal of Operational Research, Elsevier, vol. 173(3), pages 781-800, September.
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