Incremental value modeling

INTRODUCTION In many one-to-one marketing situations the marketer is interested in identifying prospects/customers (hereinafter referred to simply as customers) she can profitably influence through a direct marketing contact. Since direct marketing often is just one of several ongoing marketing/advertising programs, many customers make purchases from the company whether they receive direct communications or not. The problem at hand then is which individuals should the company contact, so that the return on the direct marketing investment exceeds the company’s hurdle rate for such investments. Rather than have a separate hurdle rate for justifying marketing investments, many companies use the hurdle rate used to make all capital investment decisions. This typically is the firm’s cost of capital. The situation described above is endemic to many CRM (Customer Relationship Management) modeling applications: