Correspondence: Edward C. Malthouse, Integrated Marketing Communications, Northwestern University, 1845 Sheridan Road, Evanston, IL 60208-2175 US Tel: 847 467 3376; Fax: 847 491 5925; e-mail ecm@northwestern.edu

¹is an associate professor of Integrated Marketing Communications at the Medill School of Journalism at Northwestern University. He is the co-editor of the Journal of Integrated Marketing and carries out research on database marketing and media management problems. He teaches marketing research, data mining, and media marketing courses to masters students and executives at Northwestern University as well as other universities around the world including. He received his PhD in computational statistics from Northwestern University, an MSc in operational research from Southampton University, and a BA in mathematics from Augustana College.

²is Vice President of the Rhenania Group. He also works for the Deutsche Post World Net as a consultant. His research focuses on direct and database marketing optimisation. He received his PhD in marketing from WHU – Otto Beisheim School of Management, Germany and a Master of Science in Economics from the University of Bonn, Germany.

Received 12 July 2006; Revised 12 July 2006.

Abstract

The paper proposes a cost-effective method of creating customised marketing contacts, and tests the method with a large field experiment. The firm should sub-segment its customers in different ways using complementary basis variables, and create marketing contacts that are comprised of content determined by the various sub-segments. A field experiment illustrates and evaluates our approach, showing that customisation improves response rates, but not basket sizes. The paper also tests the 'labelling hypothesis' for newer customers, which asserts that the firm is better off guessing (labelling) the segment membership of a newer customer (about whom little is known because of limited transaction history) than sending a generic offer. We find that customised offers outperform generic offers for newer customers.