Bookbinders Book Club Case (Customer Choice)

MARKETING ENGINEERING FOR EXCEL • CASE • VERSION 2.0.
Case
Bookbinders Book Club
By Gary L. Lilien & Arvind Rangaswamy
Introduction
About 50,000 new titles, including new editions, are published in the United
States each year, giving rise to a $20+ billion book publishing industry. About
10 percent of the books are sold through mail order.
Book retailing in the 1970s was characterized by the growth of chain
bookstore operations in concert with the development of shopping malls.
Traffic in bookstores in the 1980s was enhanced by the spread of discounting.
In the 1990s, the superstore concept of book retailing was responsible for the
double-digit growth of the book industry. Generally situated near large
shopping centers, superstores maintain large inventories of anywhere from
30,000 to 80,000 titles. Superstores are putting intense competitive pressure
on book clubs, mail-order firms and retail outlets. Recently, online
superstores, such as www.amazon.com, have emerged, carrying 1–2.5 million
titles and further intensifying the pressure on book clubs and mail-order firms.
In response to these pressures, book clubs are starting to look at alternative
business models that will make them more responsive to their customers’
preferences.
Historically, book clubs offered their readers continuity and negative option
programs that were based on an extended contractual relationship between
the club and its subscribers. In a continuity program, popular in such genres
as children’s books, a reader signs up for an offer of several books for a few
dollars each (plus shipping and handling on each book) and agrees to receive
a shipment of one or two books each month thereafter. In a negative option
program, subscribers get to choose which and how many additional books they
will receive, but the default option is that the club’s selection will be delivered
to them each month. The club informs them of the monthly selection and they
must mark “no” on their order forms if they do not want to receive it. Some
firms are now beginning to offer books on a positive-option basis, but only to
selected segments of their customer lists that they deem receptive to specific
offers.
Book clubs are also beginning to use database marketing techniques to work
smarter rather than expand the coverage of their mailings. According to
Doubleday president Marcus Willhelm, “The database is the key to what we are
doing…. We have to understand what our customers want and be more
flexible. I doubt book clubs can survive if they offer the same 16 offers, the
same fulfillment to everybody.”2 Doubleday uses modeling techniques to look
at more than 80 variables, including geography and the types of books
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customers purchase, and selects three to five variables that are the most
influential predictors.
The Bookbinders Book Club

The BBB Club was established in 1986 for the purpose of selling specialty
books through direct marketing. BBBC is strictly a distributor and does not
publish any of the books it sells. In anticipation of using database marketing,
BBBC made a strategic decision right from the start to build and maintain a
detailed database about its members containing all the relevant information
about them. Readers fill out an insert and return it to BBBC which then enters
the data into the database. The company currently has a database of 500,000
readers and sends out a mailing about once a month.
BBBC is exploring whether to use predictive modeling approaches to improve
the efficacy of its direct mail program. For a recent mailing, the company
selected 20,000 customers in Pennsylvania, New York and Ohio from its
database and included with their regular mailing a specially produced brochure
for the book The Art History of Florence. This resulted in a 9.03 percent
response rate (1806 orders) for the purchase of the book. BBBC then
developed a database to calibrate a response model to identify the factors that
influenced these purchases.
For this case analysis, we will use a subset of the database available to BBBC.
It consists of data for 400 customers who purchased the book, and 1,200
customers who did not, thereby over-representing the response group. The
dependent variable for the analysis is Choice -- purchase or no purchase of
The Art History of Florence. BBBC also selected several independent variables
that it thought might explain the observed choice behavior. Below is a
description of the variables used for the analysis:
Choice: Whether the customer purchased the The Art History of
Florence. 1 corresponds to a purchase and 0 corresponds to a
nonpurchase.
Gender: 0 = Female and 1 = Male.
Amount purchased: Total money spent on BBBC books.
Frequency: Total number of purchases in the chosen period (used as
a proxy for frequency.)
Last purchase (recency of purchase): Months since last purchase.
First purchase: Months since first purchase.
P_Child: Number of children’s books purchased.
P_Youth: Number of youth books purchased.
P_Cook: Number of cookbooks purchased.
P_DIY: Number of do-it-yourself books purchased.
P_Art: Number of art books purchased.
To assess the performance of model, the data set includes a second sheet with
2300 customers--a holdout sample representative of the entire target market.
The use of such a validation sample in an appropriate way to compare
alternative models.
BOOKBINDERS BOOK CLUB CASE 2/3

EXERCISES
BBBC is evaluating three different modeling methods to isolate the factors that
most influenced customers to order The Art History of Florence: an RFM
(Recency, Frequency and Monetary Value) model, an ordinary linear
regression model, and a binary logit model.
1. Summarize the results of your analysis for all three models. Develop
your models using the case data files and then assess them on the
holdout data sample.
2. Interpret the results of these models. In particular, highlight which
factors most influenced the customers’ decision to buy or not to buy
the book.
3. Bookbinders is considering a similar mail campaign in the Midwest
where it has data for 50,000 customers. Such mailings typically
promote several books. The allocated cost of the mailing is
$0.65/addressee (including postage) for the art book, and the book
costs Bookbinders $15 to purchase and mail. The company allocates
overhead to each book at 45 percent of cost. The selling price of the
book is $31.95. Based on the model, which customers should
Bookbinders target? How much more profit would you expect the
company to generate using these models as compared to sending the
mail offer to the entire list?
4. Based on the insights you gained from this modeling exercise,
summarize the advantages and limitations of each of the modeling
approaches. Look at both similar and dissimilar results.
5. As part of your recommendations to the company, indicate whether it
should invest in developing expertise in any of these methods to
develop an in-house capability to evaluate its direct mail campaigns.
6. How would you simplify and automate your recommended method(s)
for future modeling efforts at the company.
1
The case and the database were developed by Professors Nissan Levin and Jacob Zahavi at Tel Aviv
University. We have adapted these materials for use with our software, with their permission.
2
DM News, May 23, 1994.
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MARKETING ENGINEERING FOR EXCEL • CASE • VERSION 2.0.

The Bookbinders Book Club

BOOKBINDERS BOOK CLUB CASE 2/3

BOOKBINDERS BOOK CLUB CASE 3/3

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