A net present value model with application to target marketing

Abstract

The net present value (NPV) model extends the traditional response model by explicitly modelling the churn or attrition probability of customers. It has become powerful marketing tool that helps with targeting loyal customers rather than transient customers. It can be used in various industries such as insurance, telecommunications and magazine subscriptions, where persistency plays a big role in marketing effi ciency and revenue. The comparison results of the traditional paid response model and the NPV model illustrate the advantage of the NPV model in acquiring longer persistency customers and generating higher net profi t.