Honey is a technology company that provides online coupons to its subscribers. Honey's analytics staff has developed a classification method to predict whether a customer who has been sent a coupon will apply the coupon toward a purchase. For a sample of customers, the following table lists the classification model's estimated coupon usage probability for a customer. For this particular campaign, suppose that when a customer uses a coupon, Honey receives $1 in revenue from the product sponsor. To target the customer with the coupon offer, Honey incurs a cost of $0.05. Honey will offer a customer a coupon as long as the expected profit of doing so is positive. Using the equation Expected Profit of Coupon Offer = P(coupon used) × Profit if coupon used + (1 - P(coupon used)) × Profit if coupon not used determine which customers should be sent the coupon. Customer Probability of Using Coupon 1 0.49 2 0.38 3 0.29 4 0.11 5 0.06 Determine the expected profit for each customer. Round your answers to the nearest cent. Enter negative value as negative number, if any. Customer Expected Profit 1 $ 2 $ 3 $ 4 $ 5 $ The expected profit is positive for customers , so these customers the coupon

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Honey is a technology company that provides online coupons to its subscribers. Honey's analytics staff has developed a classification method to predict whether a customer who has been sent a coupon will apply the coupon toward a purchase. For a sample of customers, the following table lists the classification model's estimated coupon usage probability for a customer. For this particular campaign, suppose that when a customer uses a coupon, Honey receives $1 in revenue from the product sponsor. To target the customer with the coupon offer, Honey incurs a cost of $0.05. Honey will offer a customer a coupon as long as the expected profit of doing so is positive. Using the equation

Expected Profit of Coupon Offer = P(coupon used) × Profit if coupon used + (1 - P(coupon used)) × Profit if coupon not used

determine which customers should be sent the coupon.