A novel response model and target selection method with applications to marketing

Abstract

SummaryResponse models used in marketing are not always constructed for later marketing optimisation, which often results in unsatisfactory results in target selection for future marketing activities. To solve this problem, we develop a new binary response model and a new marketing target selection method. The proposed model can predict multiple propensity scores per customer through customer‐specific propensity score distributions, which is not possible with existing response models, filling a gap in the literature. The target selection method can determine the best propensity scores from those predicted by the proposed model and use them to select customers for further marketing activities. Our simulation results and application to real marketing data confirm that the performance of the proposed model in target selection is significantly better than that of the existing models, including some popular machine learning methods, which indicate that our method can be very useful in practice.