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Exploiting response models—optimizing cross-sell and up-sell opportunities in banking
The banking industry regularly mounts campaigns to improve customer value by offering new products to existing customers. In recent years this approach has gained significant momentum because of the increasing availability of customer data and the improved analysis capabilities in data mining. Typic...
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Published in: | Information systems (Oxford) 2004-06, Vol.29 (4), p.327-341 |
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description | The banking industry regularly mounts campaigns to improve customer value by offering new products to existing customers. In recent years this approach has gained significant momentum because of the increasing availability of customer data and the improved analysis capabilities in data mining. Typically, response models based on historical data are used to estimate the probability of a customer purchasing an additional product and the expected return from that additional purchase. Even with these computational improvements and accurate models of customer behavior, the problem of efficiently using marketing resources to maximize the return on marketing investment is a challenge. This problem is compounded because of the capability to launch multiple campaigns through several distribution channels over multiple time periods. The combination of alternatives creates a complicated array of possible actions. This paper presents a solution that answers the question of what products, if any, to offer to each customer in a way that maximizes the marketing return on investment. The solution is an improvement over the usual approach of picking the customers that have the largest expected value for a particular product because it is a global maximization from the viewpoint of the bank and allows for the effective implementation of business constraints across customers and business units. The approach accounts for limited resources, multiple sequential campaigns, and other business constraints. Furthermore, the solution provides insight into the cost of these constraints, in terms of decreased profits, and thus is an effective tool for both tactical campaign execution and strategic planning. |
doi_str_mv | 10.1016/j.is.2003.08.001 |
format | article |
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subjects | Assignment problems Banking Computer applications Constrained optimization Cross-selling Database marketing Marketing Mathematical models Profit optimization Response models Up-selling |
title | Exploiting response models—optimizing cross-sell and up-sell opportunities in banking |
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