Our World Statistics Day conversations have been a great reminder of how much statistics can inform our lives. Do you have an example of how statistics has made a difference in your life? Share your story with the Community!
It’s no surprise that a Google search for credit card offers yields more than 100 pages of links (and ads). Lou Valente, one of our design of experiments experts, recently used JMP to share a direct marketing DOE case study from the 2007 book Testing 1 - 2 - 3: Experimental Design with Applications in Marketing and Service Operations by Johannes Ledolter and Arthur Swersey.
A financial institution sought to sell more credit cards and to maximize return on new cards. Which fees and interest rates would yield the most attractive product to new customers? The institution considered offering products with a lower annual fee, a new fee for opening the account, a lower initial interest rate and/or a higher long-term interest rate.
They planned to mail 120,000 offers in the first pass and then to market the most attractive offer aggressively. Using JMP, Lou created a full 24 factorial experiment to show how they identified the 16 combinations of fees and interest rates that they would offer. The institution outlined each offer in a separate invitation letter and sent each letter to 7500 prospects.
Which of the 120,000 offers got the highest response rates? Lou initially used simple Distributions in JMP to interactively investigate the relationship of the factors for the highest response rate. The institution learned that lower annual lower fee, no opening fee and a lower longer interest fee were associated with the highest number of offer acceptances. They were surprised to learn that initial interest was not as important.
Lou then built a model. Clearly those in the business of offering credit cards wanted to determine the highest acceptable annual fee and maximum initial interest the new customers could bear. Later, they will want to examine cancellations, delinquencies and profit from these new customers. Having that data would be delicious food for JMP junkies and could be helpful to each of us when considering new credit card offers.
Interested in more DOE? Join Lou's March 15 live Webcast, Design of Experiments to Solve Expensive Process Problems.Registration is required.