Uplift modelling
Encyclopedia
Uplift modelling, also known as incremental modelling, true lift modelling, or net modelling is a new predictive modelling
technique that directly models the incremental impact of a treatment (such as a direct marketing action) on an individual's behavior.
Uplift modelling has applications in customer relationship management
for up-sell, cross-sell and retention modelling. It has also been applied to personalized medicine
.
of a marketing action but also to build a predictive model that predicts the incremental response to the
marketing action. It is a new data mining
technique that has been applied predominantly in the
financial services, telecommunications and retail direct marketing industries to up-sell
, cross-sell
, churn
and retention
activities.
The table below shows the details of a campaign showing the number of responses and calculated
response rate for a hypothetical marketing campaign. This campaign would be defined as having a response rate uplift of 5%. It has created 50,000 incremental responses (100,000 - 50,000).
techniques. Typically this would use decision trees
or regression analysis
.
This model would only use the treated customers to build the model.
that focuses on the incremental response. To understand this type of model it is proposed that there
is a fundamental segmentation that separates customers into the following groups:
The only segment that provides true incremental responses is the Persuadables.
Uplift modelling provides a scoring technique that can separate customers into the groups described above.
Traditional response modelling often targets the Sure Things being unable to distinguish them from the Persuadables.
campaign the contact costs and hence the return per unit spend can be dramatically improved.
or multivariate testing
Uplift Modelling can help in understanding whether the variations in tests provide any significant uplift compared to other targeting criteria such as behavioural or demographic indicators.
Victor Lo also published on this topic and more recently Radcliffe again
Radcliffe also provides a very useful frequently asked questions section on his web site
Similar approaches have been explored in Personalized Medicine
Predictive modelling
Predictive modelling is the process by which a model is created or chosen to try to best predict the probability of an outcome. In many cases the model is chosen on the basis of detection theory to try to guess the probability of an outcome given a set amount of input data, for example given an...
technique that directly models the incremental impact of a treatment (such as a direct marketing action) on an individual's behavior.
Uplift modelling has applications in customer relationship management
Customer relationship management
Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...
for up-sell, cross-sell and retention modelling. It has also been applied to personalized medicine
Personalized medicine
Personalized medicine is a medical model emphasizing in general the customization of healthcare, with all decisions and practices being tailored to individual patients in whatever ways possible...
.
Introduction
Uplift modelling uses a randomized scientific control to not only measure the effectivenessof a marketing action but also to build a predictive model that predicts the incremental response to the
marketing action. It is a new data mining
Data mining
Data mining , a relatively young and interdisciplinary field of computer science is the process of discovering new patterns from large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics and database systems...
technique that has been applied predominantly in the
financial services, telecommunications and retail direct marketing industries to up-sell
Up-selling
Upselling is a sales technique whereby a seller induces the customer to purchase more expensive items, upgrades, or other add-ons in an attempt to make a more profitable sale. Upselling usually involves marketing more profitable services or products but can also be simply exposing the customer to...
, cross-sell
Cross-selling
Cross-selling is the action or practice of selling among or between established clients, markets, traders, etc. or the action or practice of selling an additional product or service to an existing customer. This article deals exclusively with the latter meaning. In practice, businesses define...
, churn
Churn
Churn may refer to:* Butter churn, a device used for churning butter* Churning , the process of creating butter out of milk or cream* Churn drill, a large, older drilling machine that bores large diameter holes in the ground- People and places :...
and retention
Retention
Retention may refer to:* Retention, in learning, the ability to retain facts and figures in memory ** Selective retention* Cultural retention* Customer retention...
activities.
Measuring uplift
The uplift of a marketing campaign is usually defined as the difference in response rate between a treated group and a randomized control group. This allows a marketing team to isolate the effect of a marketing action and measure the effectiveness or otherwise of that individual marketing action. Honest marketing teams will only take credit for the incremental effect of their campaign.The table below shows the details of a campaign showing the number of responses and calculated
response rate for a hypothetical marketing campaign. This campaign would be defined as having a response rate uplift of 5%. It has created 50,000 incremental responses (100,000 - 50,000).
| Group | Number of Customers | Responses | Response Rate |
|---|---|---|---|
| Treated | 1,000,000 | 100,000 | 10% |
| Control | 1,000,000 | 50,000 | 5% |
Traditional response modelling
Traditional response modelling typically takes a group of treated customers and attempts to build a predictive model that separates the likely responders from the non-responders through the use of one of a number of predictive modellingPredictive modelling
Predictive modelling is the process by which a model is created or chosen to try to best predict the probability of an outcome. In many cases the model is chosen on the basis of detection theory to try to guess the probability of an outcome given a set amount of input data, for example given an...
techniques. Typically this would use decision trees
Decision tree learning
Decision tree learning, used in statistics, data mining and machine learning, uses a decision tree as a predictive model which maps observations about an item to conclusions about the item's target value. More descriptive names for such tree models are classification trees or regression trees...
or regression analysis
Regression analysis
In statistics, regression analysis includes many techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables...
.
This model would only use the treated customers to build the model.
Uplift modelling
In contrast uplift modelling uses both the treated and control customers to build a predictive modelthat focuses on the incremental response. To understand this type of model it is proposed that there
is a fundamental segmentation that separates customers into the following groups:
- The Persuadables : customers who only respond to the marketing action because they were targeted
- The Sure Things : customers who would have responded whether they were targeted or not
- The Lost Causes : customers who will not respond irrespective of whether they are targeted
- The Do Not Disturbs : customers who are less likely to respond because they were targeted
The only segment that provides true incremental responses is the Persuadables.
Uplift modelling provides a scoring technique that can separate customers into the groups described above.
Traditional response modelling often targets the Sure Things being unable to distinguish them from the Persuadables.
Return on investment
Because uplift modelling focuses on incremental responses only it provides very strong return on investment cases when applied to traditional demand generation and retention activities. For example by only targeting the persuadable customers in an outbound marketingOutbound Marketing
Interruption marketing is a pejorative term that refers to promoting a product through continued advertising, promotions, public relations and sales. It is considered to be an annoying version of the traditional way of doing marketing whereby companies focus on finding customers through advertising...
campaign the contact costs and hence the return per unit spend can be dramatically improved.
Removal of negative effects
One of the most effective uses of uplift modelling is in the removal of negative effects from retention campaigns. Both in the telecommunications and financial services industries often retention campaigns can trigger customers to cancel a contract or policy. Uplift modelling allows these customers, the Do Not Disturbs, to be removed from the campaign.Application to A/B and Multivariate Testing
It is rarely the case that there is a single treatment and a control group. Often the "treatment" can be a variety of simple variations of a message or a multi-stage contact strategy that is classed as a single treatment. In the case of A/BA/B testing
A/B testing, split testing or bucket testing is a method of marketing testing by which a baseline control sample is compared to a variety of single-variable test samples in order to improve response rates...
or multivariate testing
Multivariate testing
In statistics, multivariate testing or multi-variable testing is a technique for testing hypotheses on complex multi-variable systems, especially used in testing market perceptions.-In internet marketing:...
Uplift Modelling can help in understanding whether the variations in tests provide any significant uplift compared to other targeting criteria such as behavioural or demographic indicators.
History of uplift modelling
The first appearance of true response modelling appears to be due to Radcliffe and Surry.Victor Lo also published on this topic and more recently Radcliffe again
Radcliffe also provides a very useful frequently asked questions section on his web site
Similar approaches have been explored in Personalized Medicine
Personalized medicine
Personalized medicine is a medical model emphasizing in general the customization of healthcare, with all decisions and practices being tailored to individual patients in whatever ways possible...