Dynamically Managing a Profitable Email Marketing Program

Although email-marketing is highly profitable and widely used by marketers, it has received limited attention in marketing literature. Extant research either focuses on customers' email responses or studies the “average” effect of emails on purchases. In this paper, we use data from a U.S. home improvement retailer to study customers' email open and purchase behaviors by using a unified Hidden Markov and Copula framework. Contrary to conventional wisdom, we find that email active customers are not necessarily active in purchases, and vice versa. Furthermore, we find that the number of emails sent by the retailer has a non-linear effect on both the retailer's short- and long-term profitability. Through a counterfactual study, we provide a decision support system to guide the retailer to make optimal email contact decisions. This study shows that sending the right number of emails is vital for long-term profitability. For example, sending 4 (10) emails instead of the optimal number of 7 emails can cause the retailer to lose 32% (16%) of its lifetime profit per customer.