A New Marketing Strategy Map for Direct Marketing
Young Ae Kim
KAIST Business School
H. S. Song
affiliation not provided to SSRN
Soung Hie Kim
Korea Advanced Institute of Science and Technology (KAIST) - Management Engineering
International Journal of Knowledge-Based Systems, Forthcoming
KAIST Business School Working Paper Series No. 2009-001
Direct marketing is one of the most effective marketing methods with an aim to maximize the customer's lifetime value. Many cost-sensitive learning methods which identify valuable customers to maximize expected profit have been proposed. However, current cost-sensitive methods for profit maximization do not identify how to control the defection probability while maximizing total profits over the customer's lifetime. Unfortunately, optimal marketing actions to maximize profits often perform poorly in minimizing the defection probability due to a conflict between these two objectives . In this paper, we propose the sequential decision making method for profit maximization under the given defection probability in direct marketing. We adopt a Reinforcement Learning algorithm to determine the sequential optimal marketing actions. With this finding, we design a marketing strategy map which helps a marketing manager identify sequential optimal campaigns and the shortest paths toward desirable states. Ultimately, this strategy leads to the ideal design for more effective campaigns.
Number of Pages in PDF File: 37
Keywords: Sequential decision making; Reinforcement Learning; Direct marketing strategy; Customer Relationship Management; Marketing strategy map
Date posted: January 24, 2009
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