Predicting Mail-Order Repeat strongBuyingstrong Which Variables Matter.pdfVIP

Tijdschrift voor Economie en Management Vol. XLVIII, 3, 2003 Predicting Mail-Order Repeat Buying: Which Variables Matter? by D. VAN DEN POEL* Dirk Van den Poel Department of Marketing, Ghent University, Gent ABSTRACT In this study, we propose a customer-oriented conceptual model of segmentation variables for mail-order repeat buying behavior. We investigate (1) from a theo- retical perspective what customer-related variables should be included in response models for modeling repeat purchasing, and (2) empirically validate how these variables perform for predictive purposes. We use binary logit model- ing. Our results confirm that all three traditionally-used R(ecency), F(requency) and M(onetary value) variables are very important in predicting who is going to purchase during the next mailing period, with frequency being the most impor- tant one. In total, they account for 50 % of the ‘room for improvement’ in terms of AUC performance. However, next to the RFM variables, our findings su est that at least three other variables significantly increase the predictive perfor- mance of the models: (1) credit usage, (2) length of relationship, and (3) general mail-order buying behavior. Depending on the context of the specific company use of these additional variables may translate into millions Euro of additional profit. Furthermore, we conclude that buying additional data from external sources is not economically justified when predicting repeat purchasing behavior. * The author would like to thank Joseph Leunis and Marnik Dekimpe for their insightful comments on a previous version of this text.