OPTIMAL MAILING OF CATALOGS - A NEW METHODOLOGY USING ESTIMABLE STRUCTURAL DYNAMIC-PROGRAMMING MODELS

We investigate the key determinants of the optimal direct mail policy in a dynamic environment where customers maximize utility and the dire ct mailer maximizes profits. We measure the sensitivity of the custome rs to receiving a catalog in the mail, while controlling for customer characteristics such as elapsed time in responses and number of purcha ses. We apply our model to a database from a national cataloger that m arkets nonseasonal products. We summarize the results of our model tha t are valid for these types of products. We find that the dynamic mode l significantly outperforms its single-period counterpart. We find tha t it is not optimal to mail to individuals at low recency levels becau se they are likely to buy anyway. It is better to save the mailing dol lars for customers at higher recency levels. We find that it is optima l to mail to customers who have purchased only a small or a medium num ber of times to induce them to continue to buy from this catalog and n ot switch to others. It is not necessary to mail often to customers wh o have purchased many times before from the company unless they have h igh recency values. We find that under the optimal mailing policy the cataloguer enjoys higher profits than under the current mailing policy .