International Journal of Knowledge-Based Systems, Forthcoming
37 Pages Posted: 24 Jan 2009
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.
Keywords: Sequential decision making; Reinforcement Learning; Direct marketing strategy; Customer Relationship Management; Marketing strategy map
Suggested Citation: Suggested Citation
Kim, Young Ae and Song, H. S. and Kim, Soung Hie, A New Marketing Strategy Map for Direct Marketing. International Journal of Knowledge-Based Systems, Forthcoming; KAIST Business School Working Paper Series No. 2009-001. Available at SSRN: https://ssrn.com/abstract=1323185
By Komal Chopra