Optimizing Rhenania's Mail-Order Business Through Dynamic Multilevel Modeling (DMLM)

Authors:
Ralf Elsner;Manfred Krafft;Arnd Huchzermeier
Affiliations:
-;-;-
Venue:
Interfaces
Year:
2003

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Abstract

Rhenania, a German direct mail-order company, turned its catalog mailing practices around within one year and consequently moved up in market position from number 5 to number 2. A dynamic multilevel modeling (DMLM) approach uses elasticities to determine the optimal frequency of catalog mailings, a customer-segmentation approach allows for optimization of mailings, and a recency, frequency, monetary-value (RFM) segmentation in combination with a chi-square automatic interaction detection (CHAID) algorithm determines when customers should receive a reactivation package--as opposed to a catalog--to optimize mailing efficiency further. The DMLM approach was so effective that Rhenania acquired two competitors (one a subdivision of Springer Verlag).