Grey Code Corporation (GCC) is a media and marketing company involved in magazin

Question

Grey Code Corporation (GCC) is a media and marketing company involved in magazine
and book publishing and in TV broadcasting. GCC’s relational database contains over a terabyte of data encompassing 75 million customers. GCC uses the data in its database to develop campaigns for new customer acquisition, customer reactivation, and the identification of cross-selling opportunities for products. For example, GCC will generate separate versions of a monthly issue of a magazine that will differ only by the advertisements they contain. They will mail a subscribing customer the version with the print ads identified by their database as being of most interest to that customer. One problem facing GCC is how to boost the customer response rate to renewal offers that it mails to its magazine subscribers. The industry response rate is about 2%, but GCC has historically performed better than that. However, GCC must update its model to correspond to recent changes. GCC’s director of database marketing wants to make sure GCC maintains its place as one of the top achievers in targeted marketing.

1. Data Exploration: This includes addressing any missing data as well as treatment of variables. Variables may need to be transformed. Also, because of the large number of variables, you must identify appropriate means to reduce the dimension of the data. It may be helpful to filter out unnecessary and redundant variables.
2. Data Partition: Training, validation, and test sets.
3. Predictive Modeling: Experiment with various classification methods and propose a final model for identifying customers who will respond to the targeted marketing. a. Your report should include a chart of the Class 1 (Success or those who will Renew) and Class 0 error rates for various values of the cutoff probability.
b. Recommend a cutoff probability value. For the test set, what is the overall error rate at this value? What are the Class 1 and Class 0 error rates at this value?

c. If GCC sends the targeted marketing to the model’s top decile, what is the expected response rate? How does that compare to the average industry rate?

Explanation / Answer

c. Since the objective behind making the updated model is to raise the customer response rate to the renewal ads, it is expected that response rate after new model updation will be significantly higher than the past response rate of GCC. Question data says that past response rate of GCC is better than the industry rate of 2%. Therefore, it is resonable to assume that past response rate for GCC is 5%.

If we assume the probability of response in top decile to be 90% then total number of responses = 90% of (10% of 75 million) = 6.75 million. Therefore, expected response rate in top decile = 6.75 million / 7.5 million = 90%. This is much higher compared to average industry rate.

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