Assessing return on Marketing Contacts in B2B Market

For two reasons, Business-to-Business (B2B) marketers face greater challenges in measuring return on marketing investment than Business-to-Consumer (B2C) marketers. First, business buyers have an irregular purchase pattern. Second, marketing efforts take a longer time to build a business relationship. The purpose of this research is to capture the effect of marketing contacts such as direct mailings and telephone calls on buyer-seller relationships with heterogeneous buyer responses. Previous literature captured the effect of marketing contacts on buying behavior through a Hidden Markov model (Netzer, Lattin, and Srinivasan 2008). However, existing models are not able to capture heterogeneous marketing response parameters. This research developed from the above literature but has distinguishing features. First, marketing response parameters are heterogeneous across buyers. Allenby and Rossi (1999) suggest that uncertainty in individual level estimates should be incorporated, so that the marketers can make decisions based on customer differences. Second, this paper gives an in-depth examination of buyer-seller relationships in a business context. Third, this research provides detailed justification as to the reasons a Bayesian Hidden Markov model should be used and introduces the preferred approach of forward-backward method in Bayesian Hidden Markov model literature. Fourth, the hidden states are recovered through a forward-backward algorithm (Chib, 1996).