Too many marketers are overly focused on short-term costs over long-term gain when it comes to direct marketing investment decisions. They tend to pursue whichever customers seem to be the cheapest both to gain and to retain. Unfortunately, such clients are not always the most profitable.
INSEAD Associate Professor of Marketing Werner Reinartz, Prof. Jacquelyn Thomas of Northwestern University and Prof. V. Kumar of the University of Connecticut have devised an actionable quantitative model to help direct marketers. The Allocating Resources for Profits (ARPRO) model avoids the types of selection biases commonly found in similar models, and shows a far truer relationship between customer behaviour and long-term profits.
The ARPRO model incorporates profitability into marketing-mix decisions to reveal how much companies should spend on direct marketing. This can help firms establish how to maximise profitability, and how best to allocate funds for direct marketing as part of their overall budgets. The authors offer a very thorough explanation as to why their data so clearly shows that many companies are still getting poor returns from their direct-marketing investments, despite there now being so many sophisticated analytical tools helping firms to identify and manage customers response to various types of direct marketing.