When Not to Model (1,934 words)
So 3M mailed 100,000 to each of two lists: the allergy sufferers and a mail responsive list. The mail responsive list blew the other list away. Past behavior is the best predictor of future behavior.
Companies today are beginning to shift from acquisition mode to retention mode. They want to acquire new customers, but they find it more profitable to increase sales from the customers they already have. So now we get to the big question: Should you use modeling to channel the communications with your existing customer base? I say, "in most cases, no." Here's why not:
1. Once you have gained a customer and built up a database file on her, you know so much specific information about her demographics, desires, needs, family composition and purchase behavior that a model using appended data is really unnecessary.
2. Customers like to be treated as individuals, not as members of some data segment.
3. Use of simpler, less expensive techniques related to a customer's purchase history can result in higher profits than can possibly be gained through modeling.
We can base our customer communications on customer behavior that is stored in our marketing databases. You build a database that includes customer purchase history: a history of behavior. This behavior history is used directly (not using a model) to make relevant offers to your existing customers.
What Vs. When
We can classify the customer behavioral data that is stored in a customer marketing database into two types:
Product history: What specific products did she buy?
Transaction history: How much did she buy, how often and how much did she spend?
Product history is easier to understand, and widely used. The most typical use is for affinity analysis. You look at a customer's purchases and draw conclusions as to the customer's likelihood to buy other products. For example: