A direct mail customer purchase model

Abstract

A general customer purchase model is presented for segmenting direct marketing customer files for direct mailings. The model specifies the functional relationships among the traditional recency, frequency, and monetary value (RFMV) variables. Because of the generic nature of the model, it can be used by different direct marketing businesses for a variety of different customer mailings. Strategic implications of the model are discussed for: a) defining active versus inactive customers, b) selecting customers for special mailings, c) comparing multiple customer lists for a single company, d) an overall company purchase score for a company with multiple programs/customer files, and e) product purchase scores for special product offers.

Knowledge Discovery Using Least Squares Support Vector Machine Classifiers: A Direct Marketing Case

“…In purchase incidence modelling [1,12] the main question is whether a customer will purchase during the next mailing period. Other authors have investigated related problems dealing with both the purchase incidence and the amount of purchase in a joint model [7].…”

“…Since then, the literature has accumulated so many uses of these three variable categories, that there is overwhelming evidence both from academically reviewed studies as well as from practitioners' experience that the RFM variables are the most important set of predictors for modelling mail-order repeat purchasing [1,6]. However, when browsing the vast amount of literature, it becomes evident that only very limited attention has been devoted to selecting the right set of variables (and their operationalisations) for inclusion into the model of mail-order repeat buying.…”

Customer event history for churn prediction: How long is long enough?

“…Since their identification (Cullinan, 1977), many studies report three variables from the latter group as being the best predictors of customer behavior (e.g., Bhattacharya, 1998;Keaveney & Parthasarathy, 2001): recency (and length of relationship), frequency and monetary value (Bauer, 1988;Baesens, Viaene, Van den Poel, Vanthienen & Dedene, 2002;Van den Poel, 2003). Moreover, the direction of the relation between these variables and repurchase behavior and churn has been shown to be consistent across studies.…”

“…Hence, in what follows we'll review them briefly. More frequent and heavier buyers (represented by the variable frequency) are more likely to display loyal behavior (Bauer, 1988;Van den Poel, 2003;Morrison, 1966;Lawrence, 1980). Similarly, the more money a customer spends with the company (captured by monetary value), the higher the repurchase likelihood (Ganesan, 1994;Levin & Zahavi, 1996).…”

“…All categorical variables were dichotomized in the analysis. Cullinan, 1977;Bauer, 1988;Van den Poel, 2003;Morrison, 1966;Lawrence, 1980 • …”