by Ralf Elsner, Arnd Huchzermeier, Manfred Krafft
Rhenania, a German direct mail-order company, turned its catalog mailing practices around within one year and consequently moved up in market position from number five to number two. A new dynamic multi-level modeling (DMLM) approach was developed to answer the most important direct market questions: (1) when, (2) how often, and (3) to whom in our customer base should we mail to? The uniqueness of this modeling approach is that (1) customers are being dynamically evaluated based on their past purchase history, and (2) it allows for a derivation of a threshold level of sales per customer for profit maximization of mailing campaigns over time and across multiple customer segments. The DMLM approach was so effective that Rhenania outperformed the market by far and in a relatively short period of time could acquire two of its major competitors (one of them bigger than Rhenania, i.e., a subdivision of the Springer Publishing Company).
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