Previous Chapter Chapter 14: Models for Customer Selection

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Models for Customer Selection
Models for customer selection

A new stockbroker at Merrill Lynch had to pick up the telephone and generate business. The question was, whom to call? Clearly, brokers should call only potentially profitable customers who can afford to buy large amounts of financial products, but no listing exists of individuals by net worth or income. Merrill Lynch, therefore, developed quantitative models to infer customer profitability by comparing demographic data of potential customers to demographics from its existing customer base. The organization used this procedure to develop the calling lists for its brokers (Labe, 1994). In similar applications, direct mail and telephone solicitation companies that use customer selection, or “scoring” models, have reported 50% reductions in acquisition costs while facing only small reductions in ...

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