Data-Driven Approaches to Targeting Promotion E-Mails : The Case of Delayed Incentives

This paper empirically investigates using the e-mail channel to target customers with a delayed incentive promotion — specifically, gift card promotion — and derives data-driven e-mail targeting policies. Gift card promotions are popular across retailers because they incentivize customers to spend more than a fixed expenditure level on regularly priced products by rewarding customers with a gift card to be redeemed against a future purchase. The e-mail channel provides retailers with new sources of customer-level data, which enables better prediction of customers’ responsiveness to e-mails (e.g., clicking) and the sales promotion that comes with it (e.g., participation in the promotion). We formulate the retailer’s promotion e-mail targeting problem by maximizing two objectives — the promotion’s profitability (i.e., profit-based targeting) and e-mail click-through rate (i.e., CTR-based targeting). We also take into account the retailer’s promotion budget and exclusivity concerns in targeting e-mails. We use a comprehensive dataset from a Fortune 500 luxury fashion retailer’s online channel and utilize both parametric and non-parametric methods to predict customers’ response to promotion e-mails. Our data-driven targeting policies improve the promotion’s profitability by 5.57% and e-mail CTR by 472.57%, on average, compared to our partner retailer’s current e-mail policy. We also find that the CTR-based targeting policy lowers promotion profitability by, on average, 9.09% compared to the profit-based one. However, the CTR-based policy recuperates the short-term losses in the long-term and increases long-term profitability by 3.94%, on average, compared to the profit-based targeting policy