For example, node "A" in Exhibit 5 includes 15,799 customers from the
training sample. Of the 15,799 customers in this node, 576 belong to the
target category of Yes (i.e. they are buyers), which is a response rate of
3.65%.
The terminal nodes of the tree and the summary statistics in Exhibit 7 are
used to identify which segments to target and which to avoid. An important
decision is how 'deep' in the customer base to go. This decision may be
based on the number of prospects wanted, a desired response rate or a
desired proportion of potential buyers you want to contact, or profitability.
For the BookBinders' mailing offering The Art History of Florence, we know:
• Cost to mail offer to customer: $0.50
• Selling price (shipping included): $18.00
• Wholesale price paid by Bookbinders: $9.00
• Shipping costs: $3.00
• Breakeven for this promotion = $0.50/$6.00 = 8.33%
Case Questions
1. Using the information in Exhibits 5 and 6, summarize which customer
groups should be targeted with this mailing. Use language that could
be understood by someone unfamiliar with decision tree analyses.
2. Use the information in Exhibit 7 to make a cumulative gains graph for
both the training and test samples. Be sure to include a no model line
and label your axes.
3. Use the information in Exhibit 7 to make a cumulative lift graph for
both the training and test samples. Be sure to include a no model line
and label your axes.
4. Based on your graphs and assessment of the case material, does the
decision tree analysis appear 'overfit'? Why or why not?
5. Estimate what the gross profit (in dollars, and as a % of gross sales)
as well as what the return on marketing would be if the "The Art
History of Florence" offer were only mailed to those predicted by the
CHAID tree results to be good prospects for this offer. Be sure to
combine across the training and test samples.

For example, node "A" in Exhibit 5 includes 15,799 customers from the
training sample. Of the 15,799 customers in this node, 576 belong to the
target category of Yes (i.e. they are buyers), which is a response rate of
3.65%.
The terminal nodes of the tree and the summary statistics in Exhibit 7 are
used to identify which segments to target and which to avoid. An important
decision is how 'deep' in the customer base to go. This decision may be
based on the number of prospects wanted, a desired response rate or a
desired proportion of potential buyers you want to contact, or profitability.
For the BookBinders' mailing offering The Art History of Florence, we know:
• Cost to mail offer to customer: $0.50
• Selling price (shipping included): $18.00
• Wholesale price paid by Bookbinders: $9.00
• Shipping costs: $3.00
• Breakeven for this promotion = $0.50/$6.00 = 8.33%
Case Questions
1. Using the information in Exhibits 5 and 6, summarize which customer
groups should be targeted with this mailing. Use language that could
be understood by someone unfamiliar with decision tree analyses.
2. Use the information in Exhibit 7 to make a cumulative gains graph for
both the training and test samples. Be sure to include a no model line
and label your axes.
3. Use the information in Exhibit 7 to make a cumulative lift graph for
both the training and test samples. Be sure to include a no model line
and label your axes.
4. Based on your graphs and assessment of the case material, does the
decision tree analysis appear 'overfit'? Why or why not?
5. Estimate what the gross profit (in dollars, and as a % of gross sales)
as well as what the return on marketing would be if the "The Art
History of Florence" offer were only mailed to those predicted by the
CHAID tree results to be good prospects for this offer. Be sure to
combine across the training and test samples.