Optimizing the Marketing Interventions Mix in Intermediate-Term CRM

Abstract

We provide a fully personalized model for optimizing multiple marketing interventions in intermediate-term customer relationship management (CRM). We derive theoretically based propositions on the moderating effects of past customer behavior and conduct a longitudinal validation test to compare the performance of our model with that of commonly used segmentation models in predicting intermediate-term, customer-specific gross profit change. Our findings show that response to marketing interventions is highly heterogeneous, that heterogeneity of response varies across different marketing interventions, and that the heterogeneity of response to marketing interventions may be partially explained by customer-specific variables related to customer characteristics and the customer’s past interactions with the company. One important result from these moderating effects is that relationship-oriented interventions are more effective with loyal customers, while action-oriented interventions are more effective with nonloyal customers. We show that our proposed model outperformed models based on demographics, recency-frequency-monetary value (RFM), or finite mixture segmentation in predicting the effectiveness of intermediate-term CRM. The empirical results project a significant increase in intermediate-term profitability over all of the competing segmentation approaches and a significant increase in intermediate-term profitability over current practice.