A two-stage screening procedure for mailing credit assessment

Direct mailing is one of the tools of business marketing. It can stimulate the purchase of mail-order products or financial services. When selecting a mailing list, we hope to obtain a higher mailing response; on the other hand, we also have to consider the risk of defaulting. In the case of selling financial services, customers who respond must be examined for credit. In order to avoid jeopardizing the existing relations with such customers, companies try to reduce their rate of declining such applicants by controlling, at the mailing stage, for the risk of choosing customers who will default. In this article, a two-stage screening procedure is constructed to solve a problem of mailing credit assessment with mailing and credit-assessment stages. A screening method can be applied to select a mailing list at the mailing stage, while the need for a credit assessment depends on the types of product or service. Therefore, this problem may include four possible models: screening with or without credit assessment and random sampling with or without credit assessment. Moreover, the optimal cutoff scores are determined by maximizing total profit. A mailing example is then given to illustrate the use of the proposed models for mailing credit assessment. Compared with a random sampling method, a screening method has a significant improvement in terms of response rate, decline rate, bad rate, and total profit.