Incorporating Direct Marketing Activity into Latent Attrition Models

Forthcoming in Marketing Science

50 Pages Posted: 5 Sep 2010 Last revised: 29 Jan 2013

See all articles by David A. Schweidel

David A. Schweidel

McDonough School of Business, Georgetown University

George Knox

Tilburg University

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

When defection is unobserved, latent attrition models provide useful insights about customer behavior and accurate forecasts of customer value. Yet, extant models ignore direct marketing efforts. Response models incorporate the effects of direct marketing, but because they ignore latent attrition, they may lead firms to waste resources on inactive customers.

We propose a parsimonious model that allows direct marketing to impact three relevant behaviors in latent attrition models – the frequency with which customers conduct transactions, the size of the transactions and the duration for which customers remain active. Our model also accounts for how the organization targets its direct marketing across individuals and over time.

Using donation data from a non-profit organization, we find that direct marketing increases donation incidence for active donors. However, our analysis also shows that direct marketing has the potential to shorten the length of a donor’s relationship. We find that our proposed model offers superior predictive performance compared to models that ignore the impact of direct marketing activity or latent attrition. We demonstrate the managerial applicability of our modeling approach by estimating the impact of direct marketing on donation behavior and identifying those donors most likely to conduct transactions in the future.

Keywords: Customer relationship management, probability models, targeting

Suggested Citation

Schweidel, David A. and Knox, George, Incorporating Direct Marketing Activity into Latent Attrition Models (January 2013). Forthcoming in Marketing Science. Available at SSRN: https://ssrn.com/abstract=1670060 or http://dx.doi.org/10.2139/ssrn.1670060

David A. Schweidel (Contact Author)

McDonough School of Business, Georgetown University ( email )

Washington, DC 20057
United States

George Knox

Tilburg University ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 13 466 8778 (Phone)
+31 13 466 3219 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=g.knox

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