Executive Summary
Most research describing response behavior to direct mailing activities has focused on a static single-firm context, neglecting potential competitive and long-term effects. In practice, multiple companies send multiple communications to people that are likely to interfere. Thus, the response to a given message will be affected by messages received previously.
This study addresses these two issues by analyzing the dynamic competitive interactions among direct mailings at the household level. The authors aim to establish that competitive interactions exist among direct marketing communications and illustrate the dynamic behavior of these competitive interactions.
The authors propose a dynamic model of household response behavior to direct mailings of competing companies. They assume that the household jointly decides whether to respond and, if so, with what amount and model this using a Tobit II specification. Furthermore, the response and amount decision depends on purchase history and on promotion history. To model the notion that people are more aware of recent events than of events in the distant past, the authors implement a Koyck lag structure in which past events receive less weight, so the effect of an event decays over time. The model accounts for endogeneity of the mailing decisions and for unobserved heterogeneity across households.
The model is considered in a charitable giving setting, in which households often receive many direct mailings from different charities within a short period and competition is strong. The authors describe the implications for the model parameters of several theoretical drivers of donating behavior and use the model to examine the practical relevance of these drivers.
They construct a unique database by merging the databases of three large charity organizations in the Netherlands. This results in five years of household-level data on the direct mailings received and the donations made by each household to each charity.
The estimated model parameters in the application indicate that substantial dynamic and competitive effects exist. Using impulse response functions, the authors investigate the short- and long-term impact of a direct mailing on the revenues of the firm sending the mailing and on the revenues of its competitors. Some clear patterns can be observed from these results. First, a charity’s own mailings are short-term substitutes; that is, an extra mailing cannibalizes the revenues of subsequent mailings. Furthermore, competitive charitable direct mailings tend to be short-term complements; that is, the direct mailings increase the total pie that is divided among the charities. In the long run, these effects die out. The results are also interpreted from a behavioral perspective.
Biography
Merel van Diepen is a doctoral candidate at the Erasmus Research Institute of Management, affiliated with the Econometric Institute, Erasmus University Rotterdam, where she also completed her master’s degree in Econometrics. Her research focuses on modeling charitable donating behavior and competition among charities.
Bas Donkers is Associate Professor of Marketing at Erasmus University Rotterdam. His research interests lie at the intersection of consumer behavior and econometrics, with a specific focus on consumer decision making.
Philip Hans Franses is Professor of Marketing Research and Professor of Applied Economics in the Econometric Institute at Erasmus University Rotterdam. Currently, he is Dean of the Erasmus School of Economics. His research interests include marketing research models and techniques.
J Marketing Research, Volume 46, Number 1, February 2009
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