Customer-adapted coupon targeting using feature selection

The management of coupon promotions is an important issue for marketing managers since it still is the major promotion medium. However, the distribution of coupons does not go without problems. Although manufacturers and retailers are investing heavily in the attempt to convince as many customers as possible, overall coupon redemption rate is low. This study improves the strategy of retailers and manufacturers concerning their target selection since both parties often end up in it battle for customers. Two separate models are built: one model makes predictions concerning redemption behavior of coupons that are distributed by the retailer while another model does the same for coupons handed out by manufacturers. By means of the feature-selection technique 'Relief-F' the dimensionality of the models is reduced, since it searches for the variables that are relevant for predicting the outcome. In this way, redundant variables are not used in the model-building process. The model is evaluated on real-life data provided by a retailer in Fast Moving Consumer Goods (FMCG). The contributions of this study for retailers as well as manufacturers are three-fold. First, the possibility to classify customers concerning their coupon usage is shown. In addition, it is demonstrated that retailers and manufacturers can stay clear of each other in their marketing campaigns. Finally, the feature-selection technique Relief-F proves to facilitate and optimize the performance of the models. (C) 2003 Elsevier Ltd. All rights reserved.