EURO 2024 Copenhagen
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2888. Bespoke Direct Marketing Optimization

Invited abstract in session TA-50: Retail Analytics, stream Retail Operations.

Tuesday, 8:30-10:00
Room: M2 (building: 101)

Authors (first author is the speaker)

1. Philipp Pithan
WHU - Otto Beisheim School of Management
2. Arnd Huchzermeier
Production Management, WHU - Otto Beisheim School of Management

Abstract

Firm growth and profitability are typically achieved through new customer acquisition and loyal customer retention, often relying on non-discriminatory mass marketing. Given the rise of customer databases and firms’ natural desire to build lasting customer relationships, retailers increasingly employ direct marketing measures. Yet the associated marketing campaigns tend to be wasteful and myopic, leaving a vast potential untapped. Bespoke Direct Marketing Optimization (BDMO) comprises (i) campaign selection, (ii) campaign sequencing, and (iii) the targeting of (sub)segments for (re)activation while considering multiple objectives. We propose an optimization model that solves these decisions simultaneously while adhering to multiple business constraints, incorporating actual customer buying behavior, and accounting for the multi-period customer migration, which, despite its major implications, is often ignored by other DMO models. We also describe a heuristic that can be applied to larger problem instances. We dramatically reduce the complexity and runtime of the optimization problems while still obtaining nearly optimal results. Using a real-world planning problem, we perform a numerical study for testing and benchmarking. There is a limit to the performance effects of increasing the budget for direct marketing models; any improvement beyond that limit is possible only with models and/or measures that are more bespoke.

Keywords

Status: accepted

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