Reference no: EM133084451
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 offerAttributes:
-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 householdYou also have the following information about the product and advertisement:
-Bottle warmer price: $40
-Bottle warmer cost: $10
-Advertisement cost: $0.50A) Explain or design 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 and that you decide to set your models to a modestly conservative 60% probability threshold.
What is the expected profit for each targeted advertisement sent when using a decision tree and when using a logistic regression subject to the budget constraint?
C) Based on your calculations, which model yields a greater expected profit, and would you recommend Baby&Me send targeted ads?
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