Understanding the role of marketing communications in direct marketing

The standard RFM models used by direct marketers include behavioral variables, but ignore the role of marketing communications. In addition, RFM models allow customer responsiveness to vary across different customers, but not across diiferent time periods. Hence, the authors first extend RFM models by incorporating the effects of marketing communications and temporal heterogeneity. Then, using direct-marketing data from a Dutch charity organization, they calibrate the proposed model, and find that it better explains customer behavior because it includes information on both the past behavior and marketing communications. More specifically, they show that direct mail communication builds goodwill, which, in turn, enhances customer's likelihood to buy. However, cumulative exposure to direct mail creates irritation, and erodes goodwill. The two opposite effects induce a cyclic pattern of goodwill formation, which repeats over four quarters. Next, the authors find that, when they control for these communications effects, the standard result - customer's likelihood to buy increases as shopping frequency increases - reverses. That is, in contrast to the extant literature, customers who donate frequently are less likely to donate in the near future. These findings are not only stable over time, but also replicate across two large data sets. Finally, the authors discuss the need for implementing pulsing strategy to mitigate irritation, and the possibility of practicing one-to-one marketing by using information on customer responsiveness, which can be estimated for each customer via the proposed model.