Predicting customer responses to direct marketing : a Bayesian approach

Abstract

Predicting Customer Responses to Direct Marketing:A Bayesian Approach By CHEN Wei Master of PhilosophyDirect marketing problems have been intensively reviewed in the marketing literature recently, such as purchase frequency and time, sales profit, and brand choices. However, modeling the customer response, which is an important issue in direct marketing research, remains a significant challenge. This thesis is an empirical study of predicting customer response to direct marketing and applies a Bayesian approach, including the Bayesian Binary Regression (BBR) and the Hierarchical Bayes (HB). Other classical methods, such as Logistic Regression and Latent Class Analysis (LCA), have been conducted for the purpose of comparison. The results of comparing the performance of all these techniques suggest that the Bayesian methods are more appropriate in predicting direct marketing customer responses. Specifically, when customers are analyzed as a whole group, the Bayesian Binary Regression (BBR) has greater predictive accuracy than Logistic Regression. When we consider customer heterogeneity, the Hierarchical Bayes (HB) models, which use demographic and geographic variables for clustering, do not match the performance of Latent Class Analysis (LCA). Further analyses indicate that when latent variables are used for clustering, the Hierarchical Bayes (HB) approach has the highest predictive accuracy.