Assignment Problem: You have just begun working for a baby products company called Baby&Me. The company has a database of 1,000,000 existing customers that are registered with an account on their website.
Just prior to your arrival, the company sent an advertisement via email to a random sample of its existing customers for a premium bottle warmer. Now, the company wants to send out another advertisement to a sample of the other 90% of existing customers for the same product but wants to target the customers most likely to respond based on the results of the first round of advertisements.
Target variable:
purchased: whether the customer used the discount offer
Attributes:
repeat_customer: whether the customer has previously purchased a product from Baby&Me
total_spent: the total amount of money the customer has spent on Baby&Me products
children: how many children the customer has
adults: how many adults live in the customer's household
You also have the following information about the product and advertisement:
Bottle warmer price: $40
Bottle warmer cost: $10
Advertisement cost: $0.50
A) Create a cost/benefit matrix table for this situation using the information above.
B) Suppose that you are given a fixed budget of $50,000 to email targeted ads for the bottle warmer, how many customers can be targeted?
C) Based on your calculations, which model yields a greater expected profit, and would you recommend Baby&Me send targeted ads?