Joint modeling of primary and secondary action in DBM

In this paper we discuss the issue of primary and secondary actions to direct mail offers. Primary action refers to the first responses consumers make toward a direct offer or soliciation. It might represent an order for a product, a request for a catalog or credit card, or a pledge to donate to a charity. As little money changes hands on primary actions, companies are also interested in secondary actions, i.e., bad debts, returns, or payments. A company concentrating solely on the prediction of primary actions might lose money on customers who do not ultimately pay. We present a model which jointly models primary and secondary action and incorporates the correlation between the two action probabilities. We also show how optimal selection should take place incorporating predicted primary and secondary action jointly. In an empirical study, the new joint model yields superior profits when compared to a split model assuming the independence of primary and secondary actions. Keywords: Database marketing, bivariate probit