The 2003 ISMS Practice Prize Winner: Optimizing Rhenania's Direct Marketing Business Through Dynamic Multilevel Modeling (DMLM) in a Multicatalog-Brand Environment

Abstract

We introduce Dynamic Multilevel Modeling (DMLM) to a multicatalog-brand environment to determine the optimal frequency, size, and customer segmentation of direct marketing activities. This optimization method leverages multicatalog-brand effects including the utilization of prior customer ordering behavior, maximization of customer value and customer share, and economies of scale and scope in printing and mailing. This enhancement of the original DMLM-approach is called Dynamic Multidimensional Marketing (DMDM). With DMLM alone, Rhenania, a German direct mail order company, turned its catalog mailing practices around and consequently rose from the number 5 to the number 2 market position. The DMLM approach was so effective that two major competitors could be bought out. Improvements provided by DMDM were threefold: more efficient resource allocation across all catalog brands, more accurate customer microsegmentation, and more effective reactivation. Presently, the company's target is to transform single-brand customer relationships into two- or three-brand relationships with higher revenue per customer. As a consequence, the Rhenania group's performance was decoupled from the overall market trend.