Direct Marketing Chapter 4

term direct marketers may use for experiment
random assignment
a component of a valid experiment that refers to the fact that both control and experiment group subjects must be assigned completely randomly so that the differences between groups occur by chance alone
the procedure by which an order response is tracked back to the starting place (catalog or offer) from which it was generated
split test
a test where at least two samples are taken from the same list, each considered to be representative of the entire list, and used for package tests or to test the homogeneity of the list
hypothesis testing
an assertion about the value of the parameter of a variable (research decides) on the basis of observed facts such as the relative response to a test of variation in advertising
null hypothesis
the statistical hypothesis that there is no difference between the means of the groups being compared
alternative hypothesis
the hypothesis that is determined when a null hypothesis is proven wrong
type 1 error
results when the decision maker rejects the null hypothesis (even though it is true)
typer 2 error
occurs when the decision maker accepts the null hypothesis (when it is not true)
chi-square (c2) test
a statistical technique for determining whether an observed difference between the test and the control in an experiment is significant
degrees of freedom
the number of observations that are allowed to vary
market penetration
the proportion of customers to some benchmark
break even
point at which the gross profit on a unit sale equates to the cost of making that unit sale
source code
the media, media vehicle, or means by which the person has responded to become a customer
movement of a prospective customer to a definite buying customer
conversion rate
the rate at which leads are converted into sales
gross sales
total sales made
cost of goods sold
all costs related to manufacturing or producing a good or service
variable costs
costs that vary with production and number of units sold
fixed costs
costs associated with a business that do not vary with production or number of units sold
unit margin
the amount of money each sale provides to cover fixed costs (AKA unit contribution, unit profit, or trade margin)
allowable margin
the amount of money that can be spent to get an order while still permitting some left over for media costs and the designated profit to be made (AKA advertising allowable)
net profit
amount of money company retains after the fixed costs are subtracted from the gross revenues and before taxes (AKA net profit margin)
cost per inquiry (CPI)
promotion costs divided by the number of inquires (people who responded but did not yet order) AKA cost per lead (CPL)
cost per response (CPR)
total promotion budget divided by total number of orders and/or inquires received
return on investment (ROI)
popular tool of measurement in business, this is the net profit divided by average amount invested in company in one year