1
DATABASE MARKETING
EXERCISES
1)
ACME Direct is a direct marketer of books, music, videos and magazines. The Marketing Director of ACME Direct
tested a new book title slightly over one year ago and has decided, based on the results of the test, to promote this
title to selected names from the database. Last month ACME Direct purchased, for the first time, new list
enhancement data (age, income, marital status, home value, etc.) not previously on the customer database.
Using the saved sample from the original test promotion one year ago, the analyst is preparing to develop a
regression model which will aid in predicting the type of customer most likely to order this particular book title. The
Marketing Director has asked the analyst to append the new enhancement data to the sample in order to see if any
of this “new enhancement data” will come into the regression equation.
Do you have any concerns regarding the marketing director’s request?
Marketing Director
If so, explain your concerns to the
2)
ACME Direct is a direct marketer of books, music, videos and magazines. Below are two customers selected at
random from the ACME database.
a) Based on this information alone, which customer do you believe is most likely to order an upcoming book
promotion and why?
Customer
Smith
Johnson
Total
Promotion
s
79
61
Total Book
Promotions
Total Book
Orders
47
33
4
3
b) If Smith’s last known order date is 4/15/00 and Johnson’s last known order date is 2/6/99, would you change
your mind regarding who you selected to promote in part (a)? Fully explain your answer.
3)
Last year a sample of names from the books product line primary customer segment was test promoted for a new
cookbook offer. The ACME analyst has built a regression model for this sample of names. The resulting
cumulative and incremental gains charts developed on the validation sample are shown below. Fill in the 3 missing
numbers on this chart.
Bucket
1
2
3
4
5
6
7
8
9
10
TOTAL
4)
CUMUL GAINS CHART
Percent Resp. Rate Gain
10.00%
9.75%
205
20.50%
8.00%
150
30.00%
6.50%
103
40.00%
5.60%
75
50.00%
5.00%
56
60.10%
4.55%
42
70.00%
4.16%
30
80.00%
3.80%
19
90.00%
3.50%
9
100.00%
3.20%
0
----
INCREM GAINS CHART
Percent
Resp. Rate
10.00%
9.75%
10.50%
6.33%
9.50%
3.26%
10.00%
2.90%
10.00%
2.60%
10.10%
2.32%
9.90%
1.79%
10.00%
1.28%
10.00%
1.10%
10.00%
0.50%
100.00%
3.20%
2
Using the gains charts shown in Question #4 the Senior Product Manager at ACME Direct will determine who to
promote for his upcoming cookbook promotion. To ensure 5% profit-after-overhead for this campaign, the Senior
Product Manager has determined he should not promote any group of customers with a response rate below
4.00%.
If the primary customer segment for the books product line (the universe the regression model was built on)
represents 3,450,000 names,
a)
How many names should the senior product manager promote?
b) What will be his expected number of orders in roll-out?
5)
Answer the following questions regarding regression analysis:
a)
What causes multicollinearity?
b) Please describe two ways one can identify that multicollinearity is present in a model.
a)
Please describe two ways that one can rid a model of multicollinearity.
6)
ACME Direct, a direct marketer of book, music, videos and magazines, has built a multiple regression model
predicting who is likely to order a World War II video set based on a saved sample of 9,994 names promoted for
this product last fall. Below is a copy of the EXCEL output from the regression run. The dependent variable was
the typical binary indicator (1=order, 0=silent).
Observations
Intercept
TSLO
NM_VIDORDS
RATIO_PDPR
GNDR_MALE
9 994
Coefficients
0.1385
-0.0159
0.0785
0.6385
0.1748
P-value
0.0395
0.0459
0.0001
0.0043
0.0175
TSLO = Elapsed time, in months, since last order of any kind
NM_VIDORDS = Total number of video orders ever made
RATIO_PDPR = Ratio of total products paid across all product lines
to total promotions sent across all product lines
GNDR_MALE = 1 if male, 0 otherwise
Score customer Jones and Matthews on the above equation and indicate which one is most likely to order this
video product. Assume today’s date is 5/1/00.
Customer
Last Order
Date
Jones
Matthews
1/1/00
10/1/99
Total Promotions
Sent (All Product
Lines)
35
66
Total Paid Orders
(All Product
Lines)
3
7
Total Video
Orders
Gender
1
3
male
unknown
3
7)
You carried out test marketing to find a scoring rule to be applied in a target segment of 100000 customers. Assume
your expected margin is 20 if someone responds to a promotion and the promotion cost is 1
Does the model look strong/good for you?
Looking at the charts below originating from a regression model used in the test marketing sample, calculate what
percentage of customers you are going to promote if you need to have an expected return exceeding 0 for every
promoted customer. If you then promote this percentage of customers, what is the expected number of responses
you are going to get.