Optimal Selection for Direct Mail

Direct marketing (mail) is a growing area of marketing practice, yet the academic journals contain very little research on this topic. The most important issue for direct marketers is how to sample targets from a population for a direct mail campaign. Although some selection methods are described in the literature, there seems to be not a single paper discussing the analytical and statistical aspects involved. The objective of this paper is to introduce a comprehensive methodology for the selection of targets from a mailing list for direct mail. At least theoretically, this methodology leads to more efficient selection procedures than the existing ones. The latter are not based on an optimal selection strategy, whereas we explicitly take the profit function into account. By equating marginal costs and marginal returns we determine which households should receive a mailing in order to maximize expected profit. In the empirical part we show that our methodology has great predictive accuracy and generates higher net returns than traditional approaches.