Valuing customer portfolios with endogenous mass-and-direct-marketing interventions using a stochastic dynamic programming decomposition

Jose Vidal-Sanz and Gökhan Yildirim
Authors registered in the RePEc Author Service: Mercedes Esteban-Bravo (mercedes.esteban@uc3m.es)

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: Customer Relationship Management generally uses the value of customers to allocate marketing budget. But marketing interventions generally change the customer behavior, turning upside-down the customers ranking based on their initial valuations and making the budget allocation suboptimal. Rational Managers should allocate the marketing budget to maximize the expected net present value of future profits drawn from each customer, simultaneously planning mass marketing interventions and direct marketing effort on each individual. This is a large dimensional Stochastic Dynamic Program, which cannot be easily solved due to the curse of dimensionality. This paper propose a new decomposition algorithm to alleviate the curse of dimensionality in SDP problems, which allows forward-looking firms to allocate the marketing budget optimizing the CLV of their customer base, simultaneously using customized and mass marketing interventions

Keywords: Marketing; Budget; allocation; CRM; Stochastic; Dynamic; Programming (search for similar items in EconPapers)
Date: 2012-06
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Journal Article: Valuing Customer Portfolios with Endogenous Mass and Direct Marketing Interventions Using a Stochastic Dynamic Programming Decomposition (2014)
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