Purpose
This paper aims to address the effective selection of customers for direct marketing campaigns. It introduces a new method to forecast campaign-related uplifts (also known as incremental response modeling or net scoring). By means of these uplifts, only the most responsive customers are targeted by a campaign. This paper also aims at calculating the financial impact of the new approach compared to the classical (gross) scoring methods.
Design/methodology/approach
First, gross and net scoring approaches to customer selection for direct marketing campaigns are compared. After that, it is shown how net scoring can be applied in practice with regard to different strategical objectives. Then, a new statistic for net scoring based on decision trees is developed. Finally, a business case based on real data from the financial sector is calculated to compare gross and net scoring approaches.
Findings
Whereas gross scoring focuses on customers with a high probability of purchase, regardless of being targeted by a campaign, net scoring identifies those customers who are most responsive to campaigns. A common scoring procedure – decision trees – can be enhanced by the new statistic to forecast those campaign-related uplifts. The business case shows that the selected scoring method has a relevant impact on economical indicators.
Practical implications
The contribution of net scoring to campaign effectiveness and efficiency is shown by the business case. Furthermore, this paper suggests a framework for customer selection, given strategical objectives, e.g. minimizing costs or maximizing (gross or lift)-added value, and presents a new statistic that can be applied to common scoring procedures.
Originality/value
Despite its lever on the effectiveness of marketing campaigns, only few contributions address net scores up to now. The new χ2-statistic is a straightforward approach to the enhancement of decision trees for net scoring. Furthermore, this paper is the first to the application of net scoring with regard to different strategical objectives.