Sun TV sells TV sets. It does not sell smart TVs so customers do not come to Sun TV if they want to purchase smart TVs. Sun TV wants to start selling smart TVs and will only sell smart TVs to customers to whom they advertise. Managers use customer information (income level, previous purchase history) to decide which customers they should target. The team needs to decide how sure it must be in predicting customer interest in a smart TV. If it is too cautious, it will choose a very high cutoff probability and only market to customers who it believes are very likely to be in the market for a smart TV. This may cause them to miss out on many customers. If they are too aggressive and choose a low cutoff probability, they may identify more individuals interested in buying smart TVs but also end up wasting marketing dollars on customers who are not interested in purchasing smart TVs. To choose a cutoff probability, the team develops the confusion matrices below for two cutoff probabilities on a validation sample of 1,000 households comprising 100 buyers and 900 non-buyers of smart TVs.
Sun TV sells TV sets. It does not sell smart TVs so customers do not come to Sun TV if they want to purchase smart TVs. Sun TV wants to start selling smart TVs and will only sell smart TVs to customers to whom they advertise. Managers use customer information (income level, previous purchase history) to decide which customers they should target. The team needs to decide how sure it must be in predicting customer interest in a smart TV. If it is too cautious, it will choose a very high cutoff probability and only market to customers who it believes are very likely to be in the market for a smart TV. This may cause them to miss out on many customers. If they are too aggressive and choose a low cutoff probability, they may identify more individuals interested in buying smart TVs but also end up wasting marketing dollars on customers who are not interested in purchasing smart TVs. To choose a cutoff probability, the team develops the confusion matrices below for two cutoff probabilities on a validation sample of 1,000 households comprising 100 buyers and 900 non-buyers of smart TVs.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter13: Regression And Forecasting Models
Section13.4: Multiple Regression Models
Problem 17P: The owner of a restaurant in Bloomington, Indiana, has recorded sales data for the past 19 years. He...
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