about rfm ™ for windows®

RFM for WindowsUsers Guide

The Database Marketing Institute, Ltd.2100 South Ocean Drive 16A

Fort Lauderdale, FL 33316 USA

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RFM for Windows® USER’S GUIDE

[email protected]

For Helena

Copyright © 2007 The Database Marketing Institute, Ltd.All Rights Reserved.

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TABLE OF CONTENTS

1 INTRODUCING RFM FOR WINDOWS®....................................11

About RFM for Windows®...............................................11

Before you begin...................................................................11

Working with Windows........................................................12

RFM for Windows® Terminology.....................................13

2 GETTING STARTED...............15

Windows Run Instructions...................................................15

Loading the Program............................................................16

Entering the Password..........................................................19

Installing RFM for Windows®..........................................20

Starting and Stopping RFM for Windows®.....................21

Getting Help..........................................................................21

Preparing customer files for RFM...................................21

Comma Delimited Format...................................................21

Opening an Existing File......................................................23

RFM for Windows® Function Buttons.............................25

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Appending RFM Cell Codes to a Database.........................29

Creating an Output File.......................................................30

Creating a Bad Data File......................................................30

Rejected Records..................................................................31

Bad Data Problems...............................................................31

Output Sort Specification.....................................................33

Basic vs Classic RFM............................................................33

Include rejects with output...................................................34

Break Even and Test Size Calculation.................................34

RFM Field Selection.............................................................36

Detecting the Date Format...................................................37

Determining the RFM Division Numbers............................38

What if you lack one of the three RFM fields?...................39

Creating the RFM Codes......................................................39

Sorting and Writing Output Data.......................................41

Report on Results of RFM Coding......................................41

Summary Reports.................................................................42

How Summary Tables are Accessed....................................45

Tabbing from Summary to Summary.................................45

Saving your report to a file.................................................46

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Calling Up Previously Saved Reports..................................47

How you can use Summary Reports....................................47

Viewing the output................................................................49

Printing a report on RFM Coding.......................................51

Creating an Nth File.............................................................51

Copy to Windows Clipboard................................................53

Select Records by RFM Cell Code.......................................56

3 RFM FOR WINDOWS® BASIC TUTORIAL.......................................61

Program Load.......................................................................61

Opening an input file............................................................62

Finding Specific Records......................................................65

Starting RFM Coding...........................................................66

Break Even and Cell Calculation.........................................67

Field Locator Panel...............................................................69

Reports on RFM Operations................................................71

Selecting an Nth....................................................................73

Copy to Clipboard................................................................75

Selecting records by RFM code............................................78

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Compare – Learning more about RFM Data......................80

4 ADVANCED TUTORIAL – SORT, APPEND, GRAPHS AND CHARTS 83

Appending Response Data....................................................86

Creating Graphs and Charts................................................91

Counting Data in your Database..........................................98

Sorting Data in your Database.............................................99

5 HOW AND WHY RFM WORKS101

How it works.......................................................................101

How the program finds responsive customers...................102

What if you have no time for a test?..................................105

Adding Non-RFM Codes....................................................106

Why it works.......................................................................106

Strategy for use of RFM.....................................................109

Creating an instant success.................................................110

When NOT to use RFM......................................................111

6 DETERMINING RFM DIVISIONS.......................................................113

Determining the correct RFM divisions............................113

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Two conflicting goals of RFM............................................113

Break Even Response Rate.................................................114

Minimum Test Cell Size.....................................................114

Experience Adjustment......................................................116

RFM Test Cells Needed......................................................117

Recency is the most powerful.............................................119

When Data is Lacking........................................................119

RFM Divisions for Small Databases..................................119

Saving Past RFM Cell Codes.............................................120

7 TRACKING RFM CELL RESPONSE...................................121

Why tracking is needed......................................................121

How Codes should be tracked............................................121

Appending Purchase Data to your Database.....................122

Determining the Break Even Response Rate.....................123

Selecting Cells for Mailing..................................................124

Should you exclude test promotion recipients?.................126

Should you exclude test promotion recipients?.................126

Should you exclude respondents to the test?.....................126

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Selecting by Recency, Frequency or Monetary.................127

8 COUNT, COMPARE AND REFORMAT...................................131

Reformatting Database Records........................................131

Using Compare to Improve your Marketing.....................132

Using Count.........................................................................133

9 UPDATING YOUR CUSTOMER DATABASE...................................137

When to update...................................................................137

How to update your database.............................................137

When your database does not import comma-delimited. .138

10 A CASE STUDY.....................139

Running the Test.................................................................140

Computing the Break Even Response Rate.......................140

Rollout Results....................................................................141

The theory behind the success............................................143

11 WHAT IS HALF LIFE?...........144

12 WHAT IS SDF?......................1508

13 EXPORTING TO SDF.............152

14 IMPORTING FROM SDF........156

15 EXPORTING TO DBF FORMAT.......................................................161

16 THE AGGREGATION FUNCTION.......................................................164

17 THE AUDIO TUTORIAL.........167

18 IMPORTING AND EXPORTING FROM EXCEL...............................169

19 TROUBLE SHOOTING...........175

20 HOW TO KEEP UP WITH DATABASE MARKETING AND COMMERCE ON THE WEB..........180

Magazines............................................................................180

Books about Database Marketing and the Web................181

Conventions & Seminars....................................................182

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Index.............................................184

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1 Introducing RFM for Windows®

About RFM for Windows®

Welcome to RFM for Windows®. You have purchased the marketing system that produces more profits from a customer database than any other segmentation method. If you have a customer database of more than 5,000 names, that contains purchase history, and run a test as described here, you should make profits which represent many times the cost of this product on your first rollout offer to your customers. RFM for Windows® automatically adds RFM Cell Codes to your customer database. With these RFM Cell Codes you can determine your best customers, determine your most responsive customers, and make profits on promotions to your current customers.

Before you begin

Before you use RFM for Windows® ,you must have certain prerequisites. They are:An IBM compatible Personal Computer with a Pentium (or faster) chip, 16 megabytes of memory (32 megabytes is better), and storage space on disk for approximately two and a half times the space needed for your customer database.The Microsoft ® Windows™ operating system Windows XP or Windows Vista, or later versions.A customer database which contains customer purchase history including most recent purchase date, number of transactions, and total dollar amounts. To be useful, the database should have customer data that goes back for one or more years.To be used as input to RFM for Windows®, the data from the database must be in dbf format, in Microsoft Excel format or converted to comma delimited format. Comma Delimited

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means that every field in the database should be separated by a comma, and those fields that include commas, should be enclosed in quotes. Example:Hughes, Arthur, 123 Main, “$2,341.00”,95/06/21,456

Stored in each customer record should be the Most Recent Purchase Date. The data must be in numbers (not letters) and may be separated by slashes, dashes or nothing: 030623. The year may be in the form 2003 or 03, but it must be consistent in every customer record. Also stored in each record must be the Total Number of Transactions or Purchases, since some period in the past, such as the initiation of the database. There are scores of different ways of calculating this number. For a bank it could be the total number of checks written, or the number of months of continuous service. For a phone company it could be the total number of calls, or the minutes used, or months of service. For a department store it could be the total number of visits, orders, or items purchased. Use whatever you can lay your hands on which serves to separate the frequent buyer from the less frequent buyer.

Finally, each record must contain the Total Dollars Spent with you since some date in the past. It could be total dollars spent per year, or total of all year dollars or average dollars per year or per month.

Working with Windows

Before you begin working with RFM for Windows®, you should understand the basics of Microsoft ® Windows™. Like other Windows-based products, RFM for Windows® presents an easy-to-use graphical user interface. Because RFM for Windows® operates in the Windows environment, it uses the standard Windows rules for selecting icons, menus, menu items, and options in dialog boxes. Before you use RFM for Windows® you should know how to:

Choose and cancel commands Move, move within, and cancel dialog boxes Work with command buttons, text boxes, list boxes,

option buttons, and check boxes.

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INTRODUCING RFM FOR WINDOWS

Note: for information, refer to the Microsoft Windows User’s Guide.

RFM for Windows® Terminology

The following table explains the terms you will need to know to follow instructions in this User’s Guide and in the online Help.Terms and DefinitionRFM Recency, Frequency, MonetaryRFM Cell Segment of the customer database with a unique RFM Cell CodeRFM Cell Code Three digit number that identifies each RFM Cell.Recency Most recent purchase dateFrequency Number of purchasesMonetary Total dollar amountNth Test sample of database which is an exact statistical replica of the databaseInput File The name of the comma delimited customer file used as input for RFM for Windows® Output File The name of the comma delimited customer file which has had RFM codes appended to it.Comma Delimited Database converted to a format where each field is separated by a commaTest Promotion A test mailing or other marketing effort to an Nth of the RFM coded database. The purpose of the test is to determine the Response Rate of each Test RFM Cell. Rollout Promotion A mailing or other marketing effort to a portion of the entire universe, based on the results of the test.Response Rate Number of responses to a promotion to each RFM cell divided by number mailed to that cell.Break Even Rate The Response Rate for an RFM cell which exactly pays for the cost of the promotion to that cell. Equals cost per piece mailed divided by the average net revenue per sale.Contacts Contacts refers to the number of people contacted in a specific promotion. For direct mail, it would be the number of pieces mailed. Divisions This word refers to the number of breakdowns of Recency, Frequency and Monetary. If we divide Recency into five groups, or quintiles, each is called a division.

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Order Margin This is the net revenue per successful sale. If you sell something for $100 which costs you $40, and the telemarketing, fulfillment, credits, returns, etc. cost you another $15, then the total cost is $55 and the order margin is $45. Cost per piece. The cost per piece of an outgoing promotion (direct mail or telemarketing). This would be equal to the total cost of the creative, printing, personalization, inserting, mailing and postage.

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2 Getting Started

Windows Run Instructions

When you get the RFM for Windows CD, put it into the CD reader of your computer. Typically, the CD reader is the D drive, but it may be the E drive or some other letter. For this manual, we will assume it is the D drive. If it is some other drive, just substitute the correct letter for D in the following instructions.

RFM™for Windows® release 4.5 works with Windows XP or Windows Vista or any later version of Windows. The following instructions assume that you have Windows XP, but the routines are similar for the other software systems.

With the CD in your CD reader, hit the Start button, and click Run. Enter D:\Setup.exe. The setup program will load. It will ask you for your Name and Company and a serial number. The serial number is located on the paper sleeve in which your RFM™for Windows® CD is contained. Enter that number when called for. Use the Typical program setup.

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When setup has finished, it will create an icon that looks like

this:

Loading the Program

Click on the RFM™for Windows® icon, and the program will load. You will see the following screen:

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GETTING STARTED

You may want to go directly to the program, but let’s assume for the moment that you decide to begin with the audio tutorial. Click the right button to view the Tutorial

To use the audio tutorial, you must have your RFM CD in your CD reader, since the tutorial works from the CD, not from your hard disk. The program may go directly to the tutorial, but more likely it will at first give you an error screen that looks like this. If so, don’t worry. Click the OK button, and use the following screen to find the location of the Tutorial program on your CD.

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Click the yellow up arrow to the right of the Look In box until

you find your CD disk (D disk) which will have the tutorial folder on it. Click on the Tutorial folder and make it jump up to the Look In window. Inside the Tutorial folder you will find the program Demo32.exe. Click it until it appears in the File Name box, then open it.

You will see the first page of the Tutorial. For more on the Tutorial, skip to Chapter 17 of this manual.

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GETTING STARTED

Entering the Password

As soon as you enter the RFM program for the first time, you will be prompted to secure a password. You may obtain this password from [email protected]

All you need is to email this information: Number of records in your customer database Name Position Company Address Phone and Fax Email address

You will receive a password within 24 hours. If you don’t, call Arthur Hughes at 954 767 4558 or email to him at [email protected] and you will receive one by email. The password will look like this: AQW-BER-GH-77 It must be in ALL CAPS. It must contain the dashes as shown.

Enter your password in your computer when you see this screen:

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mailto:[email protected]


If, by any chance, the password you enter does not work, do not panic. Try it again, and if it still does not work, call one of the above numbers and you will receive immediate assistance.

The password determines the parameters of your program. It determines how long your access to the program is valid, and how many records you may process with the program.

Installing RFM for Windows®

Starting, opening files, and quitting RFM for Windows®

Preparing customer database files for RFM for Windows®

Determining the RFM divisions required Running an RFM Demo Installing RFM for Windows®

You need the following hardware and software to install and run RFM for Windows®:An IBM compatible PC. with a Mouse and a VGA monitorWindows XP or higher, 256 Megabytes of main memory. 4 Megabytes of hard disk space, plus twice the space needed by your customer marketing database for storage or input and output to RFM for Windows®1) Insert the Install Disk in your CD Drive2) Start Windows by typing win and press ENTER. 3) From the Program Manager, choose File/Run.4) Run setup and choose OK. 5) Follow the prompts on the screen to complete the

setup.6) You will need a serial number and a password. For a

serial number, use the number that came with the software, or use 66448.

7) For a password, you should contact the Institute at [email protected] to request a password. Be sure to give them your name, position, company, address, phone, email and where you bought the product or if it is a trial version.

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GETTING STARTED

Starting and Stopping RFM for Windows®

You can start RFM for Windows® from the Program Manager when you run Windows. 1) Display the Program Manager window.2) Double Click the RFM for Windows® icon.3) To quit RFM for Windows®, click Exit at any time.

Getting Help

With your mouse. RFM for Windows® is full of help. Every dialog box contains a button with a question mark. Clicking that button leads you immediately into extensive help dealing with the panel you are viewing at the time. On the Keyboard. At any time, press F1 to display information about where you are in RFM for Windows®.In the Menu. Choose Help to see a menu of Help Commands. In the Help Window. Click the search button. Help shows you the topics relating to your selection. Select a topic and read it.

Preparing customer files for RFM

RFM codes can be added to any customer database, providing that the database has three pre-requisites:

1. A field for Most Recent Date2. A field for Total Number of Transactions3. A field for Total Dollar Amount

The details of these three fields are covered later in this manual. A customer database containing these three fields (plus other data as desired) can be in dbf, fixed field or Comma Delimited Format.

Comma Delimited Format

Comma delimited format is a file arrangement in which each field (name, address, city, zipcode, etc.) is separated by a

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comma. Most database software systems have an option for exporting their databases into comma delimited format. If yours does not, you have several other options. If you have Microsoft Excel, you can convert your database to Excel. From there, comma delimited output is one option. The saved database may have the extension .csv, or .ws or no extension at all. RFM for Windows® will accept any of these extensions, but will check to be sure that the data is in comma delimited format before processing your files for RFM. RFM for Windows® will return your data in the same format, with four new fields (ten characters) added at the end of your database record.

A comma delimited file has each field separated by a comma. If the field contains commas, the field has quotes around it. Here is an example of a comma delimited record:

Arthur, Hughes, “Senior Strategist”, e-Dialog",”Fort Lauderdale”,FL,33316

In this record, one field (position) contains a comma, so this field is enclosed in quotes. The remaining fields do not need quotes. Some comma delimited records have quotes around every field, just to be safe. That is acceptable. In a comma-delimited format, every field must be in the same position in every record. The output of RFM for Windows® is a comma-delimited database record that has RFM codes appended (using commas) at the end of the record. Each record will have appended the following:

R,F,M,RFM

These are a code for Recency, one for Frequency, one for Monetary and all three in one field, separated by commas.

RFM for Windows 4.5 will also accept files in dbf format. It can also export files to dbf format.

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GETTING STARTED

Opening an Existing File

In the upper left corner there is an Open Button. Click this button and you will see an Open Window.

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Use this browse facility to locate the directory and file name that identifies your saved comma-delimited database. Click this file name so that it appears in the Input File Name box. Click OK.

If you are running RFM for Windows® for the first time, you may wish to use the DEMOBASE.CSV which is provided with the software. If so, click DEMOBASE.CSV. Click OK. The following screen will appear:

To the right of the function buttons on the top, you will see two options: Header and Numbers.

Header Option This option instructs RFM for Windows® to treat the first record of your database as a header. Header records usually contain the names of the fields (First Name, Last Name, Address) instead of data. When viewing an opened file, if this button contains an X, the first line remains at the top of the screen. If you click this button, the X will disappear, and the first record will not be treated as a header.

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GETTING STARTED

Numbers Option. In the upper right is a numbers option. Numbers inserts line numbers so you can see where you are in your database. Click the numbers button to turn off the numbers. You will see the line numbers disappear on the left side of the screen. Click again and they come back. Leave them on. They are useful.

Viewing Records. Use the arrows at the top and bottom right to move up and down in your database. Use the arrows down at the bottom to move left and right in the database. With the header option displaying a mark, put your cursor in the lines between fields in the top record on the screen, holding the left button of your mouse down, and open up small fields so you can see the data.

File Viewing Area The area where records can be viewed is called the File Viewing Area. You will use this area to view input files, output files, bad data files, etc. It is the Main Screen of RFM for Windows®.

RFM for Windows® Function Buttons

Along the top left of your screen, you will see 20 function buttons: Open, Import from SDF, Export to SDF, Export to DBF, Create RFM Codes, Sort, Append Data, Nth Select, Select by RFM Codes, Select records by Field, Aggregate records, Count, Graphs and Charts, Compare, Half Life Computation, Copy RFM Codes to Clipboard, Find, Add/Change Header, Convert Date, and Help.

Open. Open is used to open a file for viewing. The name of the opened file is visible in the upper left line below the function buttons. Later on, you will want to view your output and other files. You can use this same screen, opening the files with your open button, and observing them in the same way as you are now doing with your database.

Import from SDF – See chapters 13-14

Import from Excel – See Chapter 18

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Export to SDF – See Chapter 15

Export to DBF – See Chapter 16

Export to Excel – See Chapter 18

Create RFM Codes. The RFM button starts a series of activities leading to appending RFM codes to your customer database records. This is the main function of RFM for Windows®. Be sure that the database to which the codes are to be appended is visible in the File Viewing Area below when you click the RFM button.

Sort. This button permits you to sort any database by up to three fields. This is particularly useful when appending external data to your database, since both match keys must be sorted in the exact same order.

Append Data. This button permits you to merge data from an external file (such as response results from a promotion) into your database. Both files must have a common match key by which they are sorted.

Nth Select. The Nth Select button is used to create a file for a test mailing. If, for example, your database contains 300,000 records, and you want to have a test mailing of 30,000 records, after you have appended RFM codes, you use the Nth Query facility to get a test file which is a statistically valid sample of your database. Be sure that your RFM coded database is visible in the File Viewing Area before you click the Nth Query button.

Select by RFM Codes. The Select by RFM codes button is used to select records by their RFM code. In the typical use of this function, you have had a test mailing several weeks ago. You have the results. Some RFM cells were profitable, and many were unprofitable. You are ready for a profitable rollout. You want to select only those cells that are profitable. Use this function to accomplish this. Be sure that your RFM coded customer database is showing on the File Viewing Area when you click this button.

Select Records by Field. Using this button you can select records by any value in any field:

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GETTING STARTED

Aggregate Records.

The Aggregation Function is used to combine a file of orders with a customer database. Each file must be sorted in customer ID order, which must be present in both records. For new users, a demonstration database is used for this function: Custhead.csv, and Orders.csv. For some customers there are no orders. For some there is one order. For several, there are many orders. This function will work with each customer record, finding all the matching orders and finding the most recent date, appending that date to the customer record, which is called Custhead.agr. In addition it finds the total items purchased, which it uses to create an Aggregation Quantity field. It adds up the total dollar amount for each customer which it puts in an Aggregation Dollar field, and it counts the total number of orders placed by each customer and puts them in an Aggregation Count Field. These four field can be used to create RFM cell codes.

Count. This button is used to count any data in your database record. Click the field you want to count. The program will count up to 1,000 different items. For instance, if

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your customers have purchased items identified by a UPC code or some other identification, you can use this button to count how many products of each type were purchased. You can use it to count customers by state, or by city, etc.

Graphs and Charts This is one of the most interesting and colorful features of RFM for Windows®. Once you have coded your database with RFM codes and have done a promotion to your customers, you will obtain response and purchase data. This data can be appended to the database by means of the append function. When this is done, click the Graphs and Charts button. Tell it where the RFM code and the Sales Amount is located. The program does the rest. It will produce stunning colorful charts showing Response Rates, Sales, ROI and other data by Recency, Frequency, and Monetary amount.

Compare. This button is used to determine the relationships between high and low values of recency, frequency and monetary amount in each RFM cell and division. Compare helps a professional marketer to determine how well her marketing program is succeeding. Successful marketing reduces the distance between high and low values in upper cells and divisions.

Half Life Computation. See Chapter 12

Copy RFM codes to Clipboard. The Clipboard button copies RFM Cell Code names and quantities to the Windows Clipboard where they can be pasted into Excel or other window spreadsheets. Be sure that your RFM coded database is showing on the File Viewing Area when you click this button.

Find. If you are looking for a particular piece of data in your database, you can find it using the Find Button. For instance, suppose you are looking for a record that contains an address with the word Crosswind in it. To find this record in the Demobase, click find and the find window will appear. Enter Crosswind in the box and click the address field in your record to highlight it. Then click forward. The database will jump to the record with the data you seek in it.

Add/Change Header Button. This button permits you to create header records where none exist, or to change the headers on existing records. Headers are useful to keep track

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GETTING STARTED

of the data in your database, particularly when you have a large number of numeric fields.

Convert Date. RFM for Windows permits you to convert two digit dates to four digit dates. To do this you click the Convert Date Button (with January 1 on it) which will bring up the Date Conversion Screen. This screen asks you to enter the location of the date in your record, and specify the incoming and outgoing date formats, including the delimiter (such as \ or / or -). When you click the convert key, the program will rewrite your records in the new format. The name of your file being converted will not change. You will note that it will change 12/23/00 to 12/23/2000. This is wonderful if we are dealing with recent dates. Be careful if the field is birth dates. If the birth date is 04/04/01 meaning April 4, 1901, this feature will convert the date to 04/04/2001.

Help Button. This button with a question mark is available on every screen. Click it to see help for the screen that you are working with at the time. Even better, click F1 when you are working on a particular part of a screen and you will find topical help for that area.

Appending RFM Cell Codes to a Database

With your database (or the demo database) showing on the File Viewing Area, click the RFM function button. You will see the following screen:

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Creating an Output File

The top bar has a space for the Output File Name. A name already appears here which you can use. You may also type here any unique name (eight characters or less) which you want to use for the output of RFM for Windows®. If you have already created an output file in the past which you wish to use again you may use the browse button to find it and click it. RFM for Windows® will warn you before you overwrite any existing file name, so the old data will be not be destroyed.

Creating a Bad Data File

In addition to an output file name, you must create a Bad Data File. RFM for Windows® will only accept good data as input. In particular, it looks in three fields for data quality.

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GETTING STARTED

These are Most Recent Date, Total Number of Transactions, and Total Dollar Amount. If it finds bad data in any of these three fields, it will reject the record (see exceptions below in “Determining the RFM Division Numbers”). RFM for Windows® separates the records with bad data from the other records in the customer file, and writes them to a separate file. Give this file a unique name with up to eight characters. You may reuse an old bad data file if you wish. RFM for Windows® will not process your records without a designated Bad Data File.

Rejected Records

The Bad Data File contains the records that were rejected during processing. There are only three reasons why a record should be rejected: It has an invalid Recency Date, an invalid Total Number of Transactions or an invalid Total Dollar Amount. If any one of these things occurs, the record will be written to the Bad Data File and not included in the RFM processing. If this happens, the user will get a clue as to the reason for the rejection. In the RFM coding at the end of the rejected record, there will be three digits, such as 00X. The first digit is the status of the Recency, the second the status of the Frequency and the third the status of the Monetary. A zero indicates that RFM for Windows® found no errors in this field. An X indicates that an error was found in this field. Note: RFM rejects all records as soon as a bad field is found. It looks first at R, then at F, then at M. If the R is bad, it will reject the record, coding the record as an X00. This does not necessarily mean that the F and the M are correct. It simply means that the R was wrong, and the record was rejected. Look at all three fields when you are correcting records.

Bad Data Problems

RFM for Windows® assumes that your database files contain three pieces of information: Most Recent Date, Number of Transactions, and Total Dollar Amount. These are the data that are used to create the RFM codes. There must be data in each of these fields for the program to work.

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Before RFM for Windows® creates the RFM codes, it will first check the validity of the data in these three areas. If the data is blank or incorrect, the record containing this bad data will not be coded. The bad records will be written to a Bad Data File. Examples of bad data:

Recency: The first record in your file will determine the record type: Date01, 02, 03, 04, 05). All subsequent records should be of the same type. If any record is not of that type, it will be rejected. Example: Record type is Date01: 1995-09-23. Later a record is encountered that has this form: 95-09-23. This record will be rejected. Example2: a record will have no date at all. This record will be rejected. Example3: a date field that contains a letter (date fields must be all numeric plus spaces, / and -). Records with a letter in the date field will be rejected.

Frequency: Frequency requires a number. Examples 0, 12, 23456, 999443. All acceptable. Commas are also acceptable: 23,456 or 223,334,001. RFM for Windows® will omit the commas from these fields in doing the sort. 223,334,001 will become 223334001 in the sorting process. Not acceptable: blank records or records containing a letter. These will be rejected.

Monetary. Acceptable: 23, $23, 5600, $5,600, $45,234.67, 0.67, $0.33. In other words, you may have dollar signs, commas and periods (to designate cents). Not acceptable: a letter or a blank field. (For Non-US currency symbols, thousands separators and decimal signs RFM for Windows® provides exceptions.)

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GETTING STARTED

Output Sort Specification

The output from RFM for Windows® may be sorted in one of two ways: RFM order or Input File Order (the default). Before you proceed to the next panel, check the order in which you want your output records sorted. If you later want to append data to your records, you may want to keep them in match-key order. You can always resort them into a different order at any time.

Basic vs Classic RFM

RFMfor Windows is designed to sort records by the classic format which results in all files being of the exact same size. For some purposes you may want to sort records by the old fashioned (Basic) technique. If you do you will get this message:

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Include rejects with output.

You have an option to have the rejected records included with your output records. This may be useful if you want to update your database from the output of RFM for Windows® directly. The rejected records receive an RFM cell code of 000. If you want this result, check this box on the panel. Then click next.

Break Even and Test Size Calculation

There are eight data areas to explain here.

Cost Per Piece Mailed. This box assumes that you are going to plan a promotion to your customer database. It could be by mail, by phone, or in some other way. Cost per piece mailed includes all the cost of the promotion: creative, printing, data processing, personalization, postage. For telemarketing, it would be the cost per call made. For business to business, this amount could be over one hundred dollars. Your can use the arrows, or enter the data directly yourself. If you are not planning an immediate promotion, fill in the data from your last promotion so as to be able to complete this panel.

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GETTING STARTED

Net Revenue Per Sale. (Order Margin). This box asks for the profit from a successful sale to one person. A couple of examples will suffice. Suppose you are selling women’s outer coats which sell for $200. The coats cost you $100 wholesale, and your costs of fulfillment, overhead, credit, and returns is $30. Your net profit is $70 per coat sold. Second example: you are using this mailing to bank customers to sell a home equity loan. You have figured the lifetime value to the bank of a typical home equity loan customer at $2,280. You calculate that for every thirty applications that are completed, you get one new home equity customer. That means that the lifetime value of a home equity inquiry is ($2,080 / 30 = $69.33) This is the figure you would use for Net Revenue Per Sale.

Break Even Response Rate. This is a mathematical calculation that is derived from the first two boxes. If, for example, your home equity promotion costs $0.72 per piece and the lifetime value of an inquiry is $69.33, then the break even rate is 1.04%. Any RFM cell that has a response rate of 1.04% or higher will make money. The others will be losers.

Minimum Test Cell Size. This is also mathematically derived from the Break Even Response Rate. It is equal to 4 / BE. In the case above, it is 4 / 1.04% = 385 records. What is the reason for this formula? It is this: One sale in an RFM cell could be mere chance. Two sales could be two accidents. When you make three sales in a single cell, you have a certain assurance that the customers like the product. Four sales confirms it. To get enough candidates for four sales, you divide the break even rate into four, giving you the minimum test cell size. Is there a better way of figuring this number? There probably is. If you have a better way, by all means use it. This way will do until a better one comes along.

Experience Adjustment. After you have used RFM for Windows® for a while, you will become quite professional at the business of making profits with your database. You will learn that there are two ways to create profits: by increasing sales or by reducing costs. You will become an expert at both. This is where the Experience Adjustment comes in. From the preceding paragraph you will note that the formula for the minimum test size is 4 / break even response rate. After a while, you won’t be satisfied with 4. You will decide

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that, for you, you can get away with 3.5 or 3.2 or some other number, and still have accurate results – accuracy being measured in how close your Test Response Rates come to your Rollout Response rates for each cell. The smaller your test cells, the lower your costs (but the less accurate your predictions). Once you develop some experience you can reduce your experience adjustment from 400 (=4) to 390 (=3.9) etc. Make it as low as you feel you can get away with and still have good predicting ability.

RFM Cells Desired. To use this data area, you must have an idea of your test budget. If, for example, you have been allotted a test budget of $20,000, then with that money you can mail only so many letters. At $0.72 per letter, you can mail only 27,777 letters. Click the arrows at the right until the test budget figure matches your budget. You will find that you can have only 72 RFM cells.

Test File Size Required. This is another mathematical number which is derived from multiplying the RFM cells desired by the Minimum Test Cell Size. The smaller the test file, the less expensive are the tests. When you have the RFM cells desired, click Next. Prev. Takes you back one screen. Back takes you back to the beginning again.

RFM Field Selection

This screen asks you to locate Recency, Frequency and Monetary in your database record. You do this as follows:

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GETTING STARTED

Selecting Recency Click the arrow to the right of the Recency Field box. All the fields in your input record will be displayed, each with a field number. They will appear somewhat in this order:1 - Arthur2 - Hughes3- $2,1344 - 97/04/15 <== This is the Most Recent Date 5 - Haymarket...etc.

Browse down the list of fields until you find the one that represents the Most Recent Date. In the above example, it is field number 4. Click that field. It will jump up into the Recency Field Name Box. Go to the Frequency Field Name Box.

Selecting Frequency. In the same way as Recency, click the arrow beside the Frequency Field Name box. Browse down the fields until you encounter the field containing the Total Number of Transactions. Click it, and it will jump into the Frequency Field Name Box. Move down to the Monetary Field Name Box.

Selecting Monetary. The Monetary field is selected in the same way. Browse until you find the Total Dollar Amount field and click it. Move now to detect the date format.

Detecting the Date Format.

Below the three field entry areas is a Date Format entry. Click the Detect button. RFM for Windows® will compare the date field in the Most Recent Date field of your record with the date fields acceptable for the program (there are 20 possibilities). If you have one of the possible formats, it will show in the Date Format window. If you do not, you cannot run RFM for Windows®. You must change the format of the dates in your customer database.

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Determining the RFM Division Numbers

To the right of the RFM Field Name Boxes are three Division Number boxes. They all show the number “5”, which is the default. You have an opportunity to change them up or down. The divisions you choose depend on the size of your customer database and the data in your database. Basically, these numbers determine the number of RFM cells you will have in your database. As the default numbers are now set, you will have 125 RFM cells (5 X 5 X 5 = 125). This number needs to be adjusted to the desired number of cells from the previous screen. If you have forgotten what it is, click Prev.

If you need to achieve a number lower than 125, reduce the divisions of Monetary or Frequency. In most cases, Recency should be kept high (5 or even higher) because it is a very

38

GETTING STARTED

powerful discriminator. The rationale for division numbers is covered at length in Chapter 5 - Determining RFM Divisions.

What if you lack one of the three RFM fields?

If your database record lacks data for either R, F, or M, you may still use RFM for Windows®. Suppose, for example, you lack data on the Total Dollar Amount (Monetary). No problem. Do not specify any field for Monetary, but set the monetary division at zero. Doing this indicates to RFM for Windows® that this field is to be omitted from the coding. You will have only 25 RF cells, instead of 125 RFM cells. In this case, you may wish to set your Recency number to something higher than 5 -- such as 6 or 8. The RFM codes appended to your record will look like this: 550. 540, 530, 520. The 0 in the third position indicates that monetary is not present.

What is the advantage of setting Monetary at 0 instead of at 1? Answer: at 1, RFM will reject records with bad data in the monetary field. At 0, no records will be rejected for this reason. Click Create.

Creating the RFM Codes

RFM Code ConstructionR

FM

One SortFiveSorts

Twenty-five sorts

Database

5

4

3

2

1

35

34

33

32

31

335

334

333

332

331

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When you have entered all your field specifications, click the button for Create and RFM for Windows® will create your RFM Cell Codes and append them to your database records.This process will take some time, depending on the size of your database. RFM for Windows® will handle any database size up to 10 million customer records, depending on the version that you purchased. RFM for Windows® goes through a number of sort and division operations.

Recency Sort and Coding. First it sorts all records in order of Most Recent Date, from most recent to most ancient. It then divides your file into the number of divisions you have specified. If you left the divisions at “5”, your database will be divided into five parts. The most recent 20% (top quintile) will be given the R code of “5”. The next older quintile will get the code of “4”, the next “3”, etc. Every record in your database (excepting the bad records excluded from the operation and written to the Bad Data File) will emerge with a code of 5, 4, 3, 2, or 1.

Frequency Sorts and Coding. Next, RFM for Windows® will perform a separate sort for each of the recency groups. Each will be sorted separately by Total Number of Transactions, from highest to lowest. Each of the sorted groups will be divided by the specified division number for Frequency, and given a frequency code. If the frequency division is “5”, each record will have a frequency code of 5, 4, 3, 2, or 1. The same thing will happen to each of the Recency groups. Since Frequency involves much more sorting and dividing operations, it will consume about five times as much time as the first step.

Monetary Sorts and Coding. Finally, each of the twenty five (or other number) frequency groups will be sorted by Total Dollar Amount. Each of these sorted fields will be divided by the monetary division, and assigned monetary codes. The sorting and coding process is now complete.

What added data will look like. Each record will have ten bytes added at the end of the record. The bytes will consist of “R,F,M,RFM”. What the added data will look like this: “4,1,5,415” This indicates that this record is in the second highest quintile for Recency, the lowest quintile for frequency,

40

GETTING STARTED

and the highest quintile for dollar amount. If the divisions are all “5”, there will be 125 different RFM cells created.

Sorting and Writing Output Data

Your database will now be written to the output file in one of two orders (as you specified in an earlier step): RFM order (the default ) or Input File Order. You may now use your coded customer database to increase your marketing profits.

Report on Results of RFM Coding.

Your output report will look like the above. The total number of input records is shown, the bad records and the final output records. The number of cells will be calculated and divided into the number of good records, giving you an average number of records per cell.

The statistics show the highest and lowest data in each of the three categories (R, F, and M). Check these carefully to be sure that your records do not contain totally erroneous data. For example, if your Recency low is some date like 1926/06/13, you may have trouble if your company was founded in 1985. You could not have a transaction that occurred in 1926. Rule: if there is one bad record like this in a large database, there are probably a hundred or more bad records. Developing a marketing program based on bad data may be just throwing money away. Study the bad

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data. Clean up your records, and run RFM for Windows® again before you do any serious marketing.

Median.Check the median of each of the three fields to be sure that your data is accurate. Median refers to the record in the middle, not to the average. The average is not calculated. If your database contains 800,000 records, the median record for recency is record number 400,000 when records are sorted by recency. When sorted by frequency, the median record is the middle record in the middle Recency group - or upper middle group if there are an even number. If the divisions are 5-5-5, it will be the middle record in the 3 Recency group. When sorted by Monetary, the median record is the middle record in the middle Frequency group which is in the middle Recency Group. If the divisions are 5-5-5 it will be the middle record in the 3-3 Recency-Frequency group. If the number of groups is even, the median will be selected from the upper middle group.

Summary Reports

When the RFM codes have been appended, you will see a report screen like this:

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GETTING STARTED

While RFM for Windows is creating and appending RFM codes to your database records, it is also calculating summary information about each RFM cell, and about the major divisions: R, F, and M. The information about RFM cells is organized like this:

For each RFM cell in the database, we have the total number of members in the cell, the total dollars, the percent of dollars which this cell represents of the total spending by all customers, the average spending by customers in this cell, the total number of transactions conducted by members of this cell, the percentage of all transactions and the average number of transactions by each cell member.

For each division (Recency, Frequency and Monetary) there are similar summary tables. An example of the Recency division is:

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Here is what the Frequency summary looks like:

This shows that the top 20% of all customers ranked by number of transactions, did 86% of the spending and 86% of the transactions. Looking at the monetary breakdown:

From a monetary standpoint, the top 20% highest dollar spenders accounted for 44% of all dollar spending and 37% of the transactions.

How Summary Tables are Accessed

Immediately after running RFM and appending RFM codes to a database, the program ends up with the Report on Results of RFM Coding panel. At the bottom of this panel there is a Report Button. Clicking this report button, brings into view the Report Panel that permits printing the results of the RFM coding operation.

In the middle of the right hand side of the Report Panel is a Summary Button. Clicking this button opens up the first Summary Panel called Dollars and Transactions by RFM

44

GETTING STARTED

Cell. This data can be viewed from top to bottom. Column widths can be altered. Finally, the entire summary table can be copied to the Windows Clipboard for pasting into Excel or other programs.

Tabbing from Summary to Summary

At the top of each Summary Panel are tabs which permit the user to go from Summary panel to Summary panel, there being four in all: Dollars and Transactions (by cell), Summary by Recency, Summary by Frequency and Summary by Monetary. To shift to another panel, simply click the appropriate tab.

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Saving your report to a file

At the bottom of the Report screen, there is a save option. RFM for Windows suggests a name for the saved file (Extension .RPT), and offers a browse and a Save Button. If you click the save button, what is saved is not only the report screen that you are observing at the time, but also all four of the summary panels that follow this Report Panel. They may be recalled later at any time. It is good practice to save all of your reports to disk after you have run RFM for Windows. This provides a permanent record of what you have done, with the date and file names, and all the results of your processing.

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GETTING STARTED

Calling Up Previously Saved Reports

If you have previously saved some reports, you can get them back again for viewing or copying into a spread sheet or graphics program. Here is how to do it.

From the Main Screen, choose Open. From the Open Panel, click the type of file:

until it says “Reports” . Your previously saved report can be clicked and opened. As soon as you have done this, the report will be loaded, and you will be moved immediately to the Report Panel.

How you can use Summary Reports

Everyone says that 20% of your customers provide you with 80% of your dollar totals, but how can you determine that and demonstrate it? The summary panels provide an easy method. Look, for example, at the Frequency Summary Panel:

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This shows that the top 20% of your customers from the standpoint of frequency of purchase account for 41% of your business. To show this graphically, click the graphs button at the bottom of the chart, and you will see this graph:

You can also copy this table to Excel by clicking the copy button, loading Excel, and pasting the Clipboard to Excel.

To shift rapidly from RFM for Windows to Excel or other programs, use Alt-Tab. This feature of Windows permits you to see what programs have been loaded. If, for example, you have loaded Excel, and RFM for Windows simultaneously, the process for moving data is this: In RFM for Windows, click Copy. Click Alt-Tab. A series of panels will appear with the names of the loaded programs. When the panel reads Excel, take your hands off the keyboard. Excel will appear. Click Paste. Your RFM for Windows Summary data will be pasted to Excel. Then use the Excel facility to graph the data.

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GETTING STARTED

If, however, you choose to look at percentage sales by Monetary quintile, a different picture emerges as shown here:

Which is correct? Does your top 20% give you 41% or 25% of your business? Or is the answer some other number entirely? This you will have to determine yourself by analysis. You now have the tools in your hand to make that determination. A clue: remember that Recency is very powerful. By looking only at Monetary or Frequency, we may be including in our analysis people who have not purchased from us for many years, and who have forgotten about us entirely. Are these our best customers? Should they be in the top 20%, even though they spent a lot of money with us at one time in the past?

RFM for Windows is a very powerful analytic tool. Use it carefully, wisely and with a great deal of thought. It can make you a master marketer. But, don’t jump to hasty conclusions. Think everything through, before you publish your results.

Viewing the output

Once you have created an output file (or the Reject file—see below), you may want to view the output records to see how they look. You do this by using the two buttons at the bottom of the screen: Output and Rejected.

Output. This button will return you to the File Viewing Area (the Main Screen) where your RFM coded output file has been automatically opened and is visible. Study this file to be

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sure that the data has been appended properly. You may return to the Report screen by clicking the Return button.

This shows the last part of each record where the RFM codes have been appended. The file is sorted in Input file order. You can also have the file sorted in the RFM cell order.

Rejected Records. Open the rejected record file, and study the reasons why each record was rejected:

Study the data in your output records, particularly the rejected records. You will learn a great deal about your customer records that will make you a better marketer.

Looking at these rejected records you can see some of them rejected for blank data, some because of erroneous data. The RFM codes to the right show the reason for rejection in each case. A zero reflects non-rejected data, and an X reflects rejected data. You can correct these records, and return them to the database. In such a case, redo the RFM coding.

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GETTING STARTED

Printing a report on RFM Coding.

This is a complete report. It has your name, your company and the date. The files used are shown as well as the number of records in each. The statistics on your test mailing are presented, the location of your RFM cells and the division you selected. This data appears on the screen. It may also be printed on your printer by clicking the print button. Save this report and keep it with your other test file data.

Creating an Nth File

Once you have created RFM codes in your database, and have the RFM coded records visible on the screen, you can select an Nth from that database as a test. How big should your test file be? You have already computed that number when you created the RFM codes. Study your RFM report. It contains a figure called “Test File Required”. This is what you want to create with your Nth.

Clicking the Nth Query button on the main screen, once you have created RFM codes

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An Nth is a smaller file which is a statistical replica of your master database. It is used for test marketing purposes. When you market to the people in the Nth, the response rates of each RFM cell to your promotion should be exactly the same as the response rates of RFM cells remaining in the database. It gives you great power, because you can know, in advance, how people in your master database will respond to your offer. You can avoid marketing to people who are unlikely to respond. You go through the following steps:

Create a unique Nth File Name. You may use an existing name (use the Browse Button) or enter a new name of up to eight characters.

Choose an Nth Number. Your Nth number is set at 2 (the default). It can be increased as much as desired. What RFM for Windows® does is to divide the Nth number into the number of records in the output file which you have created. You will see the Number of Records reduce as the Nth number is increased. Suppose that you have 400,000 records in your output file. You want to create a test file (using an Nth) which is 40,000 records. Simply increase your

52

GETTING STARTED

Nth number until it is 10. You will observe the number of records reduce until it is 40,000. Do this for any sized output file to produce a test file that is closest in number to your desired test size.

Chose a starting number. The starting number is set at “1” (the default). You may set it at any number. If, for example, your Nth number is set at 5, and your starting number is 1, your output file will contain records 1, 6, 11, 16, 21, etc. If you set it at “2”, your output file will contain records 2, 7, 12, 17, 22, etc. Why does it matter? Because, for some purposes, you may want to create more than one Nth file. To create two identical Nth files, which do not contain the same customers, run the Nth Query selection first using the starting number “1”. Then set up a different output Nth file, with the same Nth number but a starting number of “2”. You then have two identical test files. You may set up as many such files as you wish.

Click Create. Your output Nth file will be created.

Copy to Windows Clipboard

Your final product will consist of customer records coded by a large number of RFM cell codes. Once you do a promotion, you may want to select only certain cells for promotion, and you certainly will want to record the response rate for each cell mailed. To do this, you can copy the cell numbers and the numbers in each cell to a spread sheet program such as Excel. To do this, you must first copy them to the Windows Clipboard, and then paste them into your spreadsheet. To do this you use the Copy Panel .

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Here, we are seeking the location of the RFM cells in your database record. It is in field 14. When this is clicked, the location moves up to the RFM cell bar. Click the Show button and you will see the codes and quantities in your RFM coded database displayed:

If, for example, you had RFM divisions of 5-5-5, and you have an average number of records in each cell of 8224, and you

54

GETTING STARTED

indicate that you want data copied from your output file, what would be copied to your windows clipboard would be the following:555 8224554 8224553 8224552 8224551 8224545 8224543 8224...etc. down to111 8224If you want data from an Nth file, which contains 255 records each, then what will be copied is:555 255554 255, etc. You will then paste the copied data into a new spreadsheet, and use it to record the responses as they come in.

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Select Records by RFM Cell Code

With your RFM coded database opened and visible, click the Select button on the main menu. You will see the following screen:

Click the down arrow next to the RFM field box to view your database record. Find the RFM field and click it. The file name will appear in the box:

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GETTING STARTED

Next, click the codes box, and your screen will fill up with the codes of the RFM cells which populate your database:

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You know which RFM cells you want to select for your rollout. These are the cells that broke even or better on the test mailing. Consulting your spread sheet, click all successful cells on this screen. You can do this by holding down the shift or control key while clicking desired cells. To reset your selections, click anywhere on the viewing area without the shift or control key being depressed. Your results should look something like this:

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GETTING STARTED

Your output file name shows in the box below. You may change it if you wish.

Omitting Records. If you want to omit records which have some one byte code in a particular field, click the down arrow next to the “Do not omit records” box. You will be shown your input record format. You can hunt for the one byte code to be used to exclude certain records. In this case it is a letter K located in the 15th field:

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Now, with the fields to be selected highlighted in the viewing area, all records which have the correct RFM cell codes, but which lack the special code K, will be selected for your output file. Click Create to create the Nth output file.

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3 RFM for Windows® Basic Tutorial

This basic tutorial takes you step by step through RFM for Windows®, using the RFM for Windows® Demonstration Database. Follow these steps, and in ten minutes you will learn the basics. The next chapter contains an advanced tutorial illustrating sorting, appending, and graphs and charts.

Program Load.

Double click the RFM Icon on your Window’s screen to load the program. You will see an opening screen that looks like this:

With your mouse, click once on the RFM for Windows® logo, and it will disappear.

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Opening an input file.

RFM for Windows® works with customer databases in many different formats. Internally, it converts them to comma delimited format. We have a demonstration customer database available to us. With your mouse, click once on the Open button in the upper left corner of your screen. You will see an open window that looks like this:

Click once on Demobase.csv to make it jump up into the File Name box. Click OK. You will see furious activity as RFM for Windows® loads the demonstration database and displays it on the screen.

Viewing the input database. Let’s move around in this database.

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HOW AND WHY RFM WORKS

With your mouse, click the down arrow in the lower right to display more records. There are 1,487 records in the database. You can view them all. Click the up arrow to come back to the top.

Header Record. As you go up and down, if this option is marked, you will notice that the first record in this database remains on the top of your screen. This is because RFM for Windows® assumes that the first record is a header record (which contains field names such as Customer, First

name,

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Last name, etc.). Your database may not have a header record. In that case, if it is on, click the mark in the Header box in the upper right corner of the screen. The shading of the top line disappears. Click it again and the shading comes back. It is important to let RFM for Windows® know if this is a header record, so that it does not try to add RFM codes to it.

Numbers. While you are in the upper right corner, click the mark in the Numbers box. You will see the line numbers in the left of your screen disappear.

Click the box again and they come back. The numbers are useful. Let’s keep them.

Column Width. You can make your columns wider or narrower than they are shown. With your mouse, and the Header option marked, move to the line between Address and City on the Header Record. A double line and two arrows appears. Press the left hand button of your mouse on this line and drag it to the right. You will see that the address column becomes wider. You can vary the size of any column in this way.

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Moving to the Right. Using your mouse, click the right arrow at the bottom of the screen so that you can view the fields at the end of each record. You will see after the zip code there are three fields containing Most Recent Purchase Date, Total Number of Transactions, and Total Dollar Amount.

The recency dates are shown as Year and Month. You may have other ways of showing recency (such as 1996-04-23). RFM for Windows® accepts a number of different formats as will be shown later. Dollar amounts are shown with dollar signs. This is not necessary, of course. You can use $45 or 45 or 000045, or 45.00 or $45.00, etc.

Finding Specific Records

You can instantly find any record in your database by means of the FIND button (the button with the hand pointing to the right), Suppose you are looking for a customer who lives at 6801 Cahaba Valley Road. First click the Find button which will bring up the Find window. Second click the address field so the program will know where to look. Then enter the data you seek in the lower box as shown here. When you click Forward, the record you seek will appear at the top of your screen.

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Starting RFM Coding.

To begin RFM coding, click the RFM button in the upper left corner of your screen. A new panel will appear:

This panel asks for the name of your output file and your bad data file. Names are already suggested to you by the program, which you may accept. The file coded for RFM has an RFM extension, and the bad data file has an extension of REJ. That will be true when you use your own database as well. If you want some other name, you can click the two browse buttons to see what else is available. Or, you can make up your own names and type them into the boxes.

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Output Sort Order. RFM for Windows® suggests producing your output in input file order. If you want, instead, to have your output returned in RFM Cell order (from the most valuable customers down to the least valuable), simply click that button. For our tutorial, we will leave the default where it is. Click the Next button.

Break Even and Cell Calculation.

What you see now is one of the most interesting panels in RFM for Windows®. It permits you to calculate the break even rate on a promotion, and to determine how many RFM cells are necessary to conduct an economical test.

This panel assumes that you are going to use RFM to make a promotion to your customers. Of course, RFM has many other uses. For this Tutorial, however, let us assume that we are planning a test marketing program to our customers. We have designed a mailing piece. As you can see, RFM for Windows® has assumed that the in-the-mail cost per piece is $0.55. You can vary this amount and substitute any other number (other than zero).

Net Revenue Per Sale. (Order Margin). The box on the lower left may be a new concept for you. It asks for the net revenue (profit) from the average sale which would result from the promotion that you are planning. It assumes that the profit is $15.50. This amount may be changed to any other number. Let us set it at $40.00. The net revenue is exclusive

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of the cost of promotion. Suppose you are selling an item for $99.50 The item costs you $50, and it costs $9.50 to process the order and ship it. Your net profit is $40.00. If you are selling a long term item, such as life insurance, the net profit would be the profit that you make from the average successful sale (over a period of years).

Break Even Response Rate. These two numbers (Cost per Piece and Net Revenue) together determine your break even response rate – the box to the right of these two. This is the response rate for an RFM cell in which the net revenue just equals the cost of promotion. Any cell with a response rate below the break even rate should not be promoted. Those equal to or above it should be promoted. Change either the net revenue or the cost per piece to see how the break even rate changes.

Minimum Test Cell Size. As you were varying the cost per piece and the net revenue, you may have noticed that the Minimum Test Cell Size (the next box over to the right) also changed. This number tells you how many people in an RFM cell must be mailed for the results of a test to be valid. This is a difficult number to understand. Obviously if you only mailed ten people, and your break even rate is 2%, you couldn’t possibly have a valid idea of the response to your promotion. If you mailed ten thousand, you would have a better idea, but you may have mailed more than you needed to in order to be confident of your results. Somewhere between ten and ten thousand is the correct number to mail. This number will be very useful to you. Other chapters in the manual describe this number in some detail. For the tutorial, just accept it, and we will move on.

Experience Adjustment. This number, now set at 400, can be varied up and down. Change it now and watch its effect on the Minimum Test Cell Size. For now, we will leave this number at 400. Later, when you get experience using RFM for your particular marketing situation, you may want to move this number up or down to assure the right amount of records in your RFM tests. This adjustment is for experienced users of RFM for Windows®.

RFM Cells Needed. Moving to the right you see a box for the number of RFM cells needed. If you move these arrows

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up and down, you will see the numbers in the two boxes to the right also change. Focus on the box on the bottom, the test file mail cost. Suppose, for example, that you have been given a budget for your test promotion of $16,000. As you vary the RFM cells needed amount, the test budget goes up and down. You adjust the cells needed so that you stay within your budget. At the same time, the upper box tells you how many pieces, in total, you will mail for your test. Let us assume that you need 100 RFM cells. Press the next button.

Field Locator Panel.

This next panel asks you to find the RFM data fields in your customer record.

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Click the arrow next to the Recency box. You will see the fields in your customer database. Use the down arrow to locate the field for Recency (Most Recent Purchase Date). Click it. The field number (9) will jump up into the Recency Box. Do the same thing with Frequency and Monetary, finding the fields in your record where this data is stored. When you get through, this screen will look like this:

Detecting the Date Format. There are dozens of date formats. RFM for Windows® has to know which format you are using for Most Recent Date. Push the Detect Button so that RFM for Windows® is set for your date format. You will see the proper format registered (in this case YYMM).

Determining your divisions. As the panel is set up, it assumes that you will have 5 recency, 5 frequency and 5 monetary divisions, for a total of 125 RFM cells in all. In your case, however, you want to have only 100 cells – because your budget is only $16,000. You must change one of the divisions. Which one should you change? Try clicking Recency down from five to four. Your total cells (top middle) goes to 100 – exactly what you need. But this is a trap. Recency is the most powerful measure. You want as much detail in Recency as you can get. Better to make Monetary a four. That is what you should do. You are ready to create RFM cell codes. Click Create.

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Creating the RFM Codes. RFM for Windows® will go through some powerful sorting operations. Depending on the power of your PC, it will take from a few seconds to more than a minute to process all 1,488 records. When completed, you will see the following report screen.

Reports on RFM Operations

This shows the results of your coding. There were 5 rejected records – rejected because some of the data in one of the three fields was bad. The screen shows that there were an average of 15 records per cell. This is, of course, far too small to use for promotion. This is just a demonstration database.

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Printing the Report. Click the Print button, and a report on your RFM coding will be visible. Here is a sample.

If you click the print button here, this report will be printed on your PC printer. Go back to the report screen by pressing Back.

Viewing the Output. Click the Output Button. You will return to your original viewing screen, but there is a change. In the upper left corner you see the file name “Demobase. RFM”. You are viewing the output of your processing. Using the arrows at the bottom of your screen, move to the right in your records. You will see the following:

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In the last column, you see the three digit RFM code. None of them end with 5. Why not? Because you set the division of monetary at 4. Before the RFM three digit number, you see three fields for R, F, and M. You may need these fields later when you want to pick out records by one of these factors, not just be RFM cell alone. Let’s now take an Nth of the RFM file.

Selecting an Nth.

Click the Nth button on the top of the screen. You will see this panel:

The purpose of this panel is to create a test file from the main database using an Nth. As the panel begins, the Nth is set at

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2, which means that the main database will be divided in half. The number in the test file is 742. Use the arrows to increase the size of the Nth. You will see the number of records in the test file decrease. For the purpose of our test, set the Nth number at 100 so that the number of records set for the test is 15.

Starting Number. The starting number is set at 1. You may set it at any other number. The purpose of the starting number is to permit you to set up more than one test file. If, say, your Nth is 10, you could set up the first test file starting at record 1. The second file could start at record 2. In this way, each test file would have different individuals in it. For our test, set the starting number at 1.

Promotion History. At the bottom of the panel you have an opportunity to add a single byte to the end of each database record that has been selected for the test. This is done so that you can keep track in your database of which records were used for the test. We will add such a character. Click the Add option and enter a character. It now shows a C. To make it a K, delete the C (with the delete key) and make it a K.

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Database Output. Below this line is a box for the name of the database output file – the database file that includes the added character. A name has been provided. Accept this name, or create another.

Click Create to create the Nth test file. In a minute, your test file is ready. To view the file, click Show.

Here are the 15 records which you selected for the test file.

Now we are going to carry out two other functions: Clipboard and Select.

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Copy to Clipboard.

RFM works by keeping track of responses to promotions by RFM cell. The idea is to determine the response rate for each test cell, and therefore to know how each cell in the larger database will react to the same offer. To keep track by cell, we need to post the results to a spread sheet. RFM for Windows® makes this easy by putting onto the spreadsheet the names of the cells and the numbers of records in each. To do this, let’s return to our RFM coded file. Click Open and find the file named Demobase.RFM. Click it, and click OK. This file now appears in our Viewing Screen. Click the Clipboard button. You will see the following panel:

Locating the RFM field. Click the arrow next to the RFM box. You will see the record layout of the demo database with RFM codes. Click 14-554 which is the location of the RFM code. Then click Show. After a minute, the screen will fill up with the codes in the record and the count in each field. They all have 15 records in each, but if you use your down arrow, you will find that there are a few with 14. Click Copy.

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Opening Excel or Lotus. If you have Excel or Lotus on your PC, open one of them, and open a blank worksheet. Click Paste. You will see the data from RFM for Windows® displayed on the spreadsheet.

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Return now to RFM for Windows®. Click Select. You will see the following panel. .

Selecting records by RFM code.

This panel is used to choose records from your database by their RFM cell code. It is used after a test is completed and you know which RFM cells responded to your offer in the test with a response rate that exceeded break even. From your Excel spreadsheet, you can read off the successful cell names. You use this screen to select those cells from your customer database.

Locating the RFM Cell Field. As in previous panels, we have to let the panel know where the RFM field is located in our record. Press the arrow next to the RFM field box to reveal your database layout. Find the RFM code, and click it. Then click Codes. Your panel will now fill up with the appropriate RFM codes.

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Highlighting Cells. With one hand, hold the Shift Key down. With your other hand move your mouse and with the left button down, drag the mouse over the cells that you want to select. They will be highlighted. You may highlight as many cells as you wish. As you do so, the counters in the upper left hand corner will tabulate your results.

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When you are finished, you may click Create to select the records.

You will note at the bottom of the screen that the output file name is specified. Also, if you want to omit any records from your select (such as those who were mailed in the test) which have an identifying code in their database record, you may do so at this time.

Compare – Learning more about RFM Data

The final function in this basic tutorial is compare: examining the RFM data. To conduct this function, open the Demobase.rfm that you just created. You do this by clicking

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the open button and selection Demobase.rfm. Then click the compare button – the one next to the printer button on the middle of the screen. You will see the following panel:

This panel asks us to identify where the data exists in our database. The first box asks us to locate the most recent date. The second: the total number of transactions. The third the total dollar amount. The final box asks for the location of the RFM codes. Here is the result of successfully locating these four data areas on the Demobase.RFM:

The date format was automatically determined when we located the recency field. If we were using foreign currencies we could click the $Format button. Not needed now. Click next.

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The program will review all the data in the database to produce the compare data. For a large file, this will take a little time. When the processing is completed, you will be able to see the report on the comparison:

This view shows the results of compare by RFM Cell. Shown here are the upper and lower values contained in each of the five divisions by Recency, Frequency and Monetary. Clicking the RFM Division Tab above provides similar data for the data in each RFM Division.

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Completion of this selection brings the basic tutorial to a close. You now know how to use RFM for Windows®. We wish you every success with your marketing program. Be sure to use the free 90 day email help with any problems you may encounter. The email address is [email protected].

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4 Advanced Tutorial – Sort, Append, Graphs and Charts

In this chapter, we are going to do some advanced marketing work. We will use a new demonstration database: Testmail.dbf. This database is composed of 45,246 records taken from an existing database. The file contains only four fields: Customer Number, Last Date, Orders and Revenue. Open this file:

We will be working with this data throughout this chapter. Our first step is to create RFM codes for this file. We do this exactly as described in the previous chapter. Our first selection panel looks like this:

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You will note that we have selected the option “Input file order” rather than “Sorted by RFM”. We choose this option because in a later step we are going to append response data. For that step, we need to have the file sorted in Customer ID order – the order that the file is already in.

The next screen we will set net revenue at $40 and leave the remainder as it is:

Click Next to move on.

We locate the Most Recent Date, Number of Transactions and Total Dollar Amount exactly as before. Here is the resulting screen:

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The sorting process goes on as before, except that with this larger file, it takes a few seconds longer:

The report on the RFM appending process will look like this:

You are free now to view and print the report on the RFM code process. Let us go on now, however, and view the RFM output generated in the last step.

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Appending Response Data

Let us assume that you have done a promotion to the people listed in your RFM coded file. Some of these people have responded by buying a product or making a donation. As these people make their purchases, we have kept track of their customer ID numbers and have, therefore, compiled a file of Customer Ids and purchase amounts. (We will probably have other data as well such as the date of the purchase, the product purchased, the quantity purchased, etc. For now we will consider only the minimum data of ID and dollar amount.) This sale data may be captured by our telemarketers, or by point of sale equipment or other methods.

We are now going to append this customer response data to this RFM coded file. To do this we click the Append Button (the middle button of the second group of buttons from the left on the top of the panel). Clicking the Append Button brings up the following panel:

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We must now locate the response data. It is found in TESTRESP.dbf. Let’s examine this data by opening the file. Here is what it looks like:

As you can see, it consists of customer numbers and amount spent in various transactions resulting from a direct response promotion. It is this response data that we will append to our RFM coded file. To do this, open the file TESTMAIL.RFM again and we will append this response data to it.

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Click the append button again and insert the TESTRESP.dbf file in the middle box of the panel. Then click next. We see the following panel with several options available to us:

The program has already correctly located the match key in both files, which is the Customer ID Number. In these files, it is a six digit number. If the match key had contained letters, we would have clicked the match key type to change it to “String”. The bottom two options occur because there is always the possibility that some customers may have placed two orders with us rather than one. They have responded twice or more times to our most recent offer. We will count each one as more than one response, rather than ignoring

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them. We are trying to determine the overall response rate. Two responses from the same customer are just as good, financially and marketing wise, as one response from two customers. So we choose the top option. We click next. We now see a new panel that asks us to specify the format of the output.

The output format we will need will consist of the customer number, the RFM code and the appended sales data. We could, of course, keep all of the data. We could also reformat our records so that the data is in a different arrangement. For now, let’s just click the data we need, and see it arranged in the output box on the right:

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We are now ready to run the append program which will create a new file consisting of the customer number, RFM code and the sales made to each customer. Click Append.

This takes a while:

And here is the result:

There were 1,804 records in the transaction file that matched records in the master file. You can see how these look when appended to the master file:

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As you can see, several customers made purchases which are appended to their records. We are now ready to do Graphs and Charts to measure the rates of response.

Creating Graphs and Charts

The graphs and charts function of RFM for Windows® is designed to illustrate the response to a promotion which has been coded by RFM. It eliminates the need for doing graphs in Excel or other programs. To use graphs and charts you must first have done a promotion to an RFM coded file. Some of the customers have responded with a purchase. These purchases have been appended to the database. You are now ready to create graphs and charts.

To create graphs and charts, we click the Graphs and Charts Button which is the second button from the left in the third group of buttons from the left of the top of the chart. We see a locator panel that looks like this:

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This panel calls for us to find the location of the RFM code and the purchases in the input record. Click the right arrow in each box and click the appropriate field. You will see the results as follows:

Click Next. We see a break even computation panel:

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Get the data correct, as it will be used in the subsequent graphs and charts. When we click next the chart creation process will begin. The process may take some time.

We are creating extensive graphs and charts. When the process is over we see the resulting panel:

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This is the main graph and chart panel. We can look at graphs and charts of four types: R, F, M and RFM Cell. Lets look at the R Division chart first. Click Next.

Lets explain these columns in order.

Cell is the RFM Cell.

Cont. Is the number of contacts (pieces mailed).

Resp. Is the number of responses by contacts in the division.

Resp. Rate is the response rate (Responses / Contacts)

Br Even is the Break Even Rate from the previous panel.

BE Idx is the Break Even Index. 0 = Break Even.

Total Sales are the purchases by customers in the division

Avg/Resp is the average sale to responders in that division.

Avg/Cont is the average sale to contacts in that division.

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ROI is the Return on Investment. This is the cost per piece times the number of contacts divided into the total sales. A return on investment of 1.0 indicates that the promotion to that division exactly broke even.

Click Next to see the graphs of this chart.

This graph permits you to view each of the columns listed on the previous page. You simply click the appropriate option on the right. You can see graphs in two dimensions, three dimensions or 3 D isometric. A few of the 105 different graphs possible are shown below.

You can copy the graphs to the clip board, or print them on your printer. You can copy the data to Excel, or do anything you want with it.

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This graph is of the Break Even Index by RFM Cell. You will note that it shows which RFM cells did better than break even and which ones lost money. The Zoom button was pushed to make the graph fill the entire screen. But even more detail is possible. Here are the results of clicking the details option on the RFM cell graph, with a Zoom option. Here we see in absolutely clear detail exactly which cells made money and which ones lost money:

As a final example, here is a graph of average sales per contact in 2 D:

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And the same chart in isometric:

All charts and graphs can be printed on the PC printer, and the entire graphics package can be saved to disk and recalled at any time without having to rerun the data

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Counting Data in your Database

Let’s now illustrate the functions of the Count. Count permits you to count the occurrence of any piece of data in your database: products purchased, states, zip codes, dollar amounts, etc. To exercise count, simply click the count button on the main screen when the database to be counted is open. Let’s count the states in the Demobase.csv. With this database open, click Count and see this panel:

We have clicked the state field. Since it is letters, it is a string. The other possibilities are Numbers, Dates and Money. Then click next. On the next page is the result:

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You can count any data at all. The only limitation is that the program will not count more than 5,000 unique items. If you try to count more than 5,000 unique values, the program will abandon the count.

Sorting Data in your Database

Sometimes it is necessary to sort the data in your database by one or more of the fields. This is easily accomplished. Simply open the database to be sorted and click the sort button. You will see sort selection panel. To illustrate the sort, we are going to sort the Demobase by Lastname, Firstname. In the panel on the next page we have clicked these fields. Since they are alphabetic, we sort them as strings, rather than as numbers, dates or money. We want them in Ascending order (A through Z) instead of Descending order (Z through A). Here is the selection panel. You will note that the output will appear as a file called Demobase.SRT. Click Sort. :

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A report appears:

Click Output to see the results of your efforts:

Here is the file sorted in alphabetical order by last name and first name:

Since we have created a new file called DEMOBASE.SRT, the original Demobase.csv is still where it was, unsorted and available for use.

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5 How and Why RFM Works

How it works

Most successful direct marketing programs have a response rate of around 2%. That means that about 98% of those promoted do not respond. Success means that the purchases from the 2% more than pay the cost of mailing to the 100%. What if you could know, in advance, who is most unlikely to buy your product, and could therefore omit them from the promotion altogether? Then your response rate—to the same customer base—could increase to 3%, 4%, 5%, or even higher. Your profit rates would double, triple or go even much higher.RFM provides a method for determining who is likely to respond, and who is unlikely to respond to a particular offer.

Before we proceed to discuss the methods, lets us be clear from the outset the difference between profitable customers and responsive customers.

Some customers are profitable (and some customers are not profitable. Some customers respond when you write to them, and some customers do not respond. Profitability and

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responsiveness are two different qualities which may have no relationship to each other. Do not make the mistake of thinking that everyone who responds is automatically profitable, or that profitable customers are most likely to respond. It is seldom the case. Only some customers are both profitable and responsive. Some of your very best customers who give you the lion’s share of your sales and profits may never respond at all when you write to them or call them. That is the way it is, and you have to live with that. RFM for Windows® will accurately pinpoint the most likely responders. It is not as useful or accurate at pointing out the profitable customers. Profitability can be inferred, indirectly, by looking at the monetary or the frequency (not the recency) of the customers. The reason why these two measures are only indirect is because these measures do not tell us anything about price. Some customers may buy a lot, but get substantial discounts so that they may not be as profitable as others.

How the program finds responsive customers.

It accomplishes this feat through a series of steps:Coding for RFM. All records in your database are coded for RFM.

Selecting a test segment using a Nth. A portion of your database is selected for a test. The Nth is used to be sure that the selected segment is a statistical replica of the total customer base.

An offer is made to the test segment. To do it correctly, the test segment must get the exact same offer that you plan to make to the full customer file.

Some of the test customers respond to the offer. Of course, if no one responds, then you also have valuable information. The offer is a dud, and you need to go back to the drawing board. Whether your test is a financial success, however, is not important. If some people respond, you have learned something valuable: which cell they come from.

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As the sales come in, you keep track of the ID number of the customer and the amount of the sale (plus probably the date, the product purchased and the quantity). After a promotion is completed, you may have a data file that looks like this:

Customer Date ProductQty Amount 34567 07/11/13 abc22 1 $186.4512345 07/12/14 hhw24 5 $932.0187653 07/10/11 jbc52 1 $186.4566678 07/12/16 aau102 2 $ 88.12

When the promotion is completed, and you have the results, you append the sales to your RFM coded database using the Append feature of RFM for Windows® Your first step will be to sort your input data in customer ID number order using the Sort feature of RFM for Windows®. When the append process is over, you will have a file that has customer number, RFM cell code and dollar amount of the purchase resulting from this particular promotion. It may have much more data as well. Here is the minimum required:

Customer RFM Amount 13456 223 $213.4523112 544 $189.6623455 115 $ 89.45 etc.

This file is used as the input for the Graphs and Charts function of RFM for Windows®. As an essential part of creating graphs and charts, you must compute the break even rate. For this you need two pieces of information: the cost per piece mailed and the order margin for the goods sold. Specifically, the order margin is the average net profit from sales after deducting the cost of the goods, delivery, credit charges, returns, etc. Graphs and charts will automatically compute your break even response rate. The break even response rate equals (mail piece cost)/(net profit from a single sale). For example, it might be ($0.55)/($38) = 1.45% . Any RFM cell with a response rate of 1.45% or better will be profitable to promote. Any cell with a response rate lower than that will lose money.

The result of creating graphs and charts will be charts that show which RFM cells were successful and which were unsuccessful. They will look like this:

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The details of this chart can be viewed in graphic form:

Or, if you prefer, read off of a chart:

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You select from your database, only those cells with a response rate of break even or better. There will be only a portion of your database cells that meet this standard. If you have 125 RFM cells, it may be that only 40 of them have a response rate of break even or better.

For the rollout, you make the same offer to these selected cells. It should be exactly the same offer as received by the test customers if RFM is going to do its job.

You will experience a vastly improved overall response rate. In fact, you will be able to predict with extreme accuracy the response rate of every cell which is mailed. Your colleagues will consider you as some sort of a genius. (Do not tell them that it is due to RFM for Windows®. We don’t want the secret to get out.)

What if you have no time for a test?

The above reasoning assumes that you can conduct a test of a portion of your database, and then do a subsequent rollout that permits you to select a larger audience for the same promotion. Sometimes that is not possible. There is only one time of the year (such as Christmas, or Tax Time) when you can do a valid mailing. How can you use RFM? The answer is to use Retroactive RFM. Take your last promotion – it could

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have been a year ago, or six months ago. Retroactively apply RFM codes (assuming that you have the data on these customers as it existed at the time of the promotion. Be sure that you have not biased your data with subsequent purchases. Then append the purchases resulting from that last promotion using the methods just described and determine the responsive RFM cells to that specific promotion. Your previous rollout thus serves as your test. For your next rollout you can select only the responsive cells.

Adding Non-RFM Codes

RFM codes are not the only way to classify a customer database. Customers can be classified in dozens of useful ways. Bank customers, for example, can be classified into borrowers or savers. Customers can be classified by age group, married or single, with or without children. Business customers can be classified by SIC code, annual sales, number of employees. Codes for each of these categories can be created and added to RFM codes for marketing purposes. Testing and experimentation will determine how useful each additional code is in predicting purchase behavior for particular products and categories.

Why it works

RFM is a measure of customer behavior. It is different from demographic measures such as age, income, presence of children, type of housing, zip code, etc. These demographic measures may be important in predicting response. But they are never as accurate in predicting response as actual purchase behavior derived from the past, which is what RFM is. In other words, what people do predicts what people will do better than who people are.There are exceptions to this rule, of course. If you are selling dog food, it helps if you know that they have a dog. If you sell baby food, it helps if there is a baby present. If you are selling lawn mowers, you will sell more to occupants of single family homes than you will to high rise condominium dwellers.

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Assuming that you do not have to have this specialized knowledge about customers, then the best predictor of response to a rollout, will be response to a test. And, each RFM cell in the rollout will have almost exactly the same response rate as the corresponding cell in the test.

Recency As we will learn later, of the three, Recency is the most powerful predictor of customer response. People who have just bought from you are much more likely to respond to a new offer than people who bought from you a long time ago.

Why is this so? Because, when you buy a product, there is a psychological rush of enthusiasm for the product and the company that makes it. If you buy a Mitsubishi automobile, you, instinctively, look at the other cars on the highway for another Mitsubishi like yours. You want to honk and wave at the drivers. You are proud of your purchase. If you get a letter from Mitsubishi next week, you will open and read that letter. You are much more likely to do so than you are to open a letter from Ford, Toyota, or Nissan. This is a universal experience. RFM is based on the principle of Recency.

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Frequency This is also a powerful predictor, but less so than Recency. Here is a graph of the typical response rate based on frequency:

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Monetary. Finally, monetary also predicts response, particularly to offers where money is important (such as high priced items).

Strategy for use of RFM

RFM has many uses with a customer file. It is used to:Rapidly determine the most responsive customersMaximize use of marketing dollarsIdentify specific behavioral groups as marketing nichesDetermine candidates for reactivation mailingsMeasure progress of marketing program based on movement from RFM cell to cell.Make quick profits by testing promotions before rollouts.Lets explore the last use, since it is one of the most important.

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Creating an instant success

Successful database marketing aims at building long term loyalty: improving retention, referrals, spending rates, and widening product use by existing customers. Such programs require long term budgets and long term strategies. It is often difficult to get the funding for such programs. (One way is to build a lifetime value table -- see chapter 7 of this manual).

Instant Success. Another method, is to create some instant successes -- some demonstration to top management that you know what you are doing, and can create really impressive profits from your customer database in a short time. That is where RFM comes in.

Pick a product. The strategy is this: You pick a product or service that you think would appeal to a wide selection of your customers -- and that most of them do not already have. This must be a product that is not season specific (such as a Christmas gift), because your activities will consume about three months.

Create your promotion universe. From your customer database, pick out everyone who does not have this product at present. This is your promotion universe. Code these people by RFM. When this is done, use an Nth to select a test file. How big should your test file be? See Chapter 4 of this manual).

Create a timeless and winning promotion. This will be used for your test file, and also later for your rollout. To be a valid test, you must really use the same promotion in the test as in the rollout. You can, of course, use your test to try out two different offers. If you do that, you should really have two Nths which compete with one another. Keep track of the customer number on your responses so you can append your responses to your RFM coded database when the promotions are over. Then you will be ready to determine who is responsive to your offer and who is not.

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Make some impressive graphs of the test results. so that you can see what you are doing, and so you can explain to top management just what is happening -- it is all mysterious mumbo-jumbo to them, but the graphs will help.

Select from your universe, all RFM cells which break even or better. You will find that about one third, or less, of your RFM cells score break even or better. Fine. You can omit 2/3 rds of your customers from this “quick success” mailing. This will save you money, and boost your profits.

Send your offer to these selected cells. The result will be a whopping profit that exceeds anything else you have ever done. You will be an instant hero (and an RFM Guru).

When NOT to use RFM

RFM for Windows® is like a drug. It gives you such a high that you want to use it all the time. That would be a serious mistake. Two bad things happen if you use RFM for all of your mailings:

1) You completely neglect more than half of your customers by only mailing to the best ones.

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2) You may abuse your best customers by mailing to them too often. You will suffer from “file fatigue”.

What should you do? Answer: use RFM in moderation. When you are planning a major mailing and it is important to make a huge profit, RFM is your answer. When you want to maintain contact with your customers and keep them loyal, RFM is not your answer. Plan your customer contacts over a year. Figure out how many times to contact the good ones, the medium ones and the losers. Try a reactivation mailings with those at the bottom of your RFM groups. After that, forget them for a while. Concentrate your marketing dollars on the second quintile: the 455 through 411’s. These are the ones you want to move up to 555. The 355 through 211 should get newsletters and occasional promotions. Study each of your groups and learn how best to treat them. Don’t use RFM exclusively, or you may ruin your customer database.

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6 Determining RFM Divisions

Determining the correct RFM divisions

As RFM for Windows® is set up, the normal RFM divisions are 5-5-5 which result in 125 RFM cells. By this, we mean that there are five Recency divisions, five Frequency divisions and five Monetary divisions. The numbers of the cells range from 555 down to 111. But why five? Why not ten, or three, or four? Why should they all be the same? Why not have Recency (the most powerful) set at 10, Frequency at 4 and Monetary at 2? Why indeed? This chapter will explore these questions.

Two conflicting goals of RFM

RFM aims at two objectives: 1) to segment the customer file in such fine detail that you can accurately predict in advance the response of customers to an offer. 2) to keep the costs of marketing and testing to a minimum. These two objectives conflict. If you want fine detail, you might have as many as 1,000 different RFM cells. But 1,000 different RFM cells might require that every test would involve mailings of 250,000 or more which is way beyond the budget of most organizations. A way is needed to keep the number of RFM cells created to the lowest number consistent with reliable accuracy of prediction. There is a way of doing this. To explain it, we will have, first, to deal with some basic concepts: Break Even Response Rate, Cost Per Piece, Net Revenue per Sale, Minimum Test Cell Size, Test Cells Needed, Test File Required, Test File Mailing Cost, and Division Distribution. This chapter is a course in advanced marketing theory.

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DETERMINING RFM DIVISIONS

Break Even Response Rate

To know how many RFM cells to create, we need to know what the break even response rate is for each cell. Break even means that the cost of promoting the customers in the cell is exactly matched by the net revenue from sales to members of the cell. Once you know the break even rate, and you can learn the response of each RFM cell to a test, you can determine whether to mail the cell or not. Promote cells whose response rate is equal to or exceeds the break even rate. Do not promote those cells whose response rate is below the break even rate.The Break Even Response Rate is calculated by dividing the cost per piece mailed by the net revenue from a successful sale.

Net Revenue. Suppose you are selling Women’s Dresses, and the average sale is $150. Of that amount, you must take out the cost of the dresses, the cost of receiving the order, packing and shipping, and returns. Let us say that your total costs are $98. That means that the net revenue from the average sale is $52.

Cost Per Piece. Lets say that the cost of designing and printing the catalogs, addressing them and paying the postage comes down to $0.76 each. This is your Cost Per Piece.

Break Even Calculation. Your break even rate thus is: BE = (cost per piece) / (net revenue) = ($0.76) / ($52) = 1.46%Any RFM cell that has a test response rate of 1.46% or better should be promoted. Those with a lower response rate should not be promoted.

Minimum Test Cell Size

How small can the size of an RFM test cell be to get an accurate reading of the response rate? Everyone wants to know that. There are no absolute answers which are agreed upon throughout the database marketing industry. What has been adopted in RFM for Windows® represents a distillation of the best ideas in current use.

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The key to minimum test size is the number of respondents. If only one person responds to a promotion, does that represent a trend, or an accident? Chance has a lot to do with all direct marketing. You cannot conclude anything from a single response. But what about two responses? Is that a trend? Possibly not. Just two accidents. Three responses gets closer to a trend. If you get four sales from a group of promoted people, however, it is likely that the law of consumer response is more responsible than the law of chance. Accordingly, RFM for Windows® is based on having a minimum of four responses in a single cell. To determine the number of customers required in a test RFM cell, therefore, the formula is:Test Cell Size = (Four) / (Break Even Rate)If the break even rate is 1.46%, then the minimum test cell size is:Test Cell Size = (4) / (1.46%) = 274 (rounded up from 273.972)In other words, to provide a valid promotion size that is sure to represent valid customer response in this particular situation, you must have 274 members in each RFM test cell, given the average revenue and the average per piece promotion costs. Each situation is different. Yours may differ somewhat, but the formulas are universal.

If you cannot afford to spend $20,000 on a test, reduce your number of RFM cells.

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Experience Adjustment

Four is an arbitrary number. It may be useful in most cases, but may be way off for your situation. For that reason, RFM for Windows® permits you to alter the formula for minimum test cell size based on your own experience.

The panel which calculates this number lets you vary the number from 400 (4) to some other higher or lower number. If, for example, you get accurate results with 350, use that. If you are not satisfied with your accuracy at 400, increase it to 450 or higher. How do you know if it is accurate? Compare your rollout response rates with your test results for the same cell. If they are right on, you have a good experience adjustment.

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Predicted and Actual Response Rates

555 552 544 541 533 525 522 514 511 445 355 3440%

1%

2%

3%

4%

5%

6%

7%

8%

Predicted Response Rates

Actual

Response

Rates

RFM Test Cells Needed

Now we come to the second part of the trade off. How many RFM test cells do you want to have? As many as possible, you may assume. Not if each one requires you to mail 274 people to get a valid response. What will be driving your thinking will be the cost of a test mailing. Let us begin with this. Suppose you have budgeted $15,000 for your test. How many pieces can you get into the mail for $15,000? To learn this, simply divide the per piece cost into your $15,000 budget.Test File Required = (Test Budget) / (per piece cost) = ($15,000) / ($0.76) = 19,737How many RFM cells each having 274 members can you create within 19,737?RFM Cells Required = (Test File Required) / (RFM Cell Size) = (19737) / (274) = 72You can have only 72 RFM cells (not 125!). What is the best way to get 72 cells?

All of the arithmetic needed to make these calculations is built into RFM for Windows® already. You just need to fill in the blanks.

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You can divide your database into almost any number of RFM cells by varying the divisions for recency, frequency, or monetary amount. If the divisions are 5-5-5 you end up with 125 cells. 9-9-9 will give you 729 cells. The more cells, the more accurately you can predict the response of an individual customer. What’s wrong with 729 cells? Easy: depending on your break even response rate, you will probably have to have a minimum of 250 members in a cell. 729 cells means that a test will require mailing 182,250 pieces for a minimum test. This is beyond the budget of most companies, and, in general, is a waste of money. You can determine response rates at much less cost.

Why not make the divisions 3-2-2 for 12 cells? This would result in mailings of only about 3,000. This is fine if you have a small database. But 3-2-2 does not give you very accurate readings on what customers are likely to do. The more the cells, the more accurately you can predict. Somewhere

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between 12 cells and 729 cells is right for your situation. This chapter deals with this decision.

Recency is the most powerful

In the first place, Recency is the most powerful and predictive factor. Do not scrimp on Recency. Frequency is next, and Monetary is usually last (except in financial situations where it may be as important as Frequency). In the case of our Dress Sale example, we might try a breakdown like this:R-F-M = 6 X 4 X 3 = 72This solves the problem. Is this the best solution? That you will have to determine by experiment. You could try 5 X 5 X 3 giving you 75 cells (and a slightly larger test budget). You might try another combination. At this point, as a marketer, it is up to you to use your judgment and experiment with different combinations to determine the most predictive result. If you have a higher test budget, you will get better results. RFM for Windows® provides you with the tools you need. The ultimate answers you will have to discover for yourself.

When Data is Lacking

There will be times when some databases are lacking data about monetary, or frequency, or even recency. Without Recency, there is not much hope of doing successful RFM analysis, since Recency is such a strong factor. But, if one or the other of the factors is missing, you can still use RFM for Windows® to make profits with your customer database. Use what you have. The Best is the enemy of the Good. Use the Good data you have, and don’t worry about the Best. That will come later.

RFM Divisions for Small Databases

Business to Business databases are often small in size. Suppose your database contains about 40,000 customer records. How many RFM cells should you have?

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You can solve the problem in the same way as done above. Lets say that you want to have tests with no more than 4,000 customers. Your typical mail piece costs $1.50, and you follow this up with a telephone call costing $3.50 each. The total promotion cost, therefore is about $5, or $20,000 for the test. If you succeed in signing up a customer for a new line of products, you may not make a great deal on the first sale. You are computing the lifetime value of each new customer who has been converted to the new line. (See Chapter 8 Determining Customer Lifetime Value ). Lets say that the lifetime value of the average new customer for the line is $1,845. Your break even rate, therefore is:Break Even = $5 / $1845 = 2.71%The number of members of an RFM test cell is equal to:Minimum RFM Test Cell Size = 4 / 2.71% = 148 CustomersThe RFM cells = (test size) / (cell Size) = 4000 / 148 = 27How to divide 27 RFM cellsThe answer depends on your situation. Monetary could be very important with the business customer. One way of setting up 27 cells might be:R - F - M = 3 X 3 X 3 = 27Another method might be 4 X 2 X 3 = 24Another might be: 5 X 2 X 3 = 30Experiment. Find what works best.

Saving Past RFM Cell Codes

Once you create new RFM cell codes for your customer file, you will find that many of your customers have changed position. Some have moved up to higher RFM cells. Others have drifted downward to less desirable positions.Many marketers make a scientific study of the movement of cells. They pick out certain groups of cells and design promotions to get their occupants to shift to higher producing levels. Each cell has a personality of its own. By studying them, you can learn this personality, and can use this knowledge to market differently to different customer groups. Key to this knowledge is to save past RFM cells, along with the date of their creation, so you can follow the progress of customers from month to month and year to year.

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7 Tracking RFM Cell Response

Why tracking is needed

The whole point of RFM coding and marketing is knowing what cells customers are in, and tracking their response to promotions, so that the characteristics of their cell can be learned. All outgoing promotions or telephone calls should be tracked by RFM cell code, and the results posted to your database.

How Codes should be tracked

After running RFM for Windows®, the RFM cell code is in each customer record. Each outgoing promotion should have a response device (return post card, business reply form, or a label etc.) which should be pre-printed with the customer’s name and the customer’s ID code. You might even want in addition to include the RFM cell code for that customer. A typical promotion might look like this:

42356 422 Mr. Arthur M. Hughes

2100 South Ocean Drive 16AB

The first group of numbers is the customer ID number and the second group is the RFM code. You can, of course, simply include only the customer ID number, and retrieve the RFM code later by appending the purchase data to the RFM coded database when Mr. Hughes responds to your solicitation. The main thing to keep in mind is that some identifying code must appear on the outgoing message. Your operators or mail processors must capture this code when Mr. Hughes responds. Often people will call your sales office

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TRACKING RFM CELL RESPONSE

to place an order, and your operators will forget to ask for this code. Or, the customer may have mislaid the response device, so he does not have the code. When this happens, be sure that someone looks the codes up in your database and records them in the purchase record. Without these codes, your RFM analysis is useless.

Appending Purchase Data to your Database

Once a promotion is over, your telemarketers or fulfillment personnel should have captured information on every sale which includes the customer number and the amount of the purchase. This data is usually keypunched by the fulfillment house into a tape or disk record that might look something like this: Customer Date Product Qty Amount 34567 07/11/13 abc22 1 $186.4512345 07/12/14 hhw24 5 $932.0187653 07/10/11 jbc52 1 $186.4566678 07/12/16 aau102 2 $ 88.12

Using the append button in RFM for Windows® you can add this data to your database using the Customer Number as the match key. You first sort the data into Customer Number order using the Sort Button in RFM for Windows® . Then you can append some or all of the data. Here is an example of appending all of the data :.

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Determining the Break Even Response Rate

As already described, you calculate your break even rate using the formula: BE = (Mail Piece Cost) / (Avg. Net Revenue from one sale)Suppose that your in the mail cost per piece (including postage) is $0.52 and your net revenue from a successful sale is $28. Your break even will be:BE = ($0.52)/ ($28) = 1.86%All cells with a discounted rate of 1.86% or higher should be selected. Others should not be mailed. This can be done using the entry panel in Graphs and Charts:

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Selecting Cells for Mailing

Running the Graphs and Charts function you can see with the naked eye that some of your RFM cells will be profitable, and many will be unprofitable. Here is a chart which shows this information. Look in particular at the Break Even Index. Those with a minus number did not break even.

Converting this same data to a graph makes the winners and losers even more obvious:

You can clearly see which cells you want to promote on a future rollout, and which cells you want to avoid.

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Using the print button on your Graphs and Charts panels, print your charts and graphs to your PC printer. Use these printed hard copy reports to select records for your subsequent rollout. With these printed copies in hand, lets do the rollout selection.

Open RFM for Windows®, and enter your comma delimited customer database as the Input File. Run RFM for Windows® to create new RFM cell codes in your database. Why run it again? Because since the test, you have made changes in the database: additions, deletions, changes of address, etc. You should always work from the latest copy of the database. When the new RFM cell codes are affixed, select the profitable cells for the rollout.

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Should you exclude test promotion recipients?

Some marketers assume that you should not remail customers promoted in a test in the rollout mailing. Generally, that is not good marketing strategy. If a customer is in a responsive RFM cell, but does not respond, what can you conclude? They were on vacation, busy with something else, not in the mood, just made some other purchase. You should not conclude that they were uninterested in your offer, because their RFM cell status suggests otherwise. We strongly recommend that you include test promotion recipients in the rollout mailing.

If you really want to exclude them, however, RFM for Windows® provides an easy way to leave them out. When test groups are selected, you put a code in the database record of each selected cell. Keep track of what that code was. It was placed in the record immediately after the RFM cell code. Using the lower part of the RFM Cell Selection panel, click the Exclude button, and enter the code which identifies the test group. If you had more than one test group, and want to exclude them all, enter an asterisk (*) in the code box. This will exclude any database record with any code at all in this area.Run the RFM Cell Select routine and create your rollout file.

Should you exclude respondents to the test?

Here again, many marketers immediately assume that a buyer to your recent promotion will resent a second solicitation? Why? They liked the product or service enough to buy it. Now that they have it, they may want another, or want to give one to their children, friends or relatives. Remember, these people are recent buyers. They are your most loyal boosters. Give them a chance to buy again.

If you want to exclude them, of course, you can put a code in their database record and use the RFM for Windows® selection process to drop them from your mailing.

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Here we have designated the selected cells (dark shaded) and losing cells (light shaded). From our database we will select only the winners for our rollout.

Selecting by Recency, Frequency or Monetary

Thus far, we have been talking about viewing customer database records by RFM codes, which are three digit codes. RFM for Windows, however, appends three other fields to your records: a digit for Recency, one for Frequency and one for Monetary. These individual fields have very important uses on their own. To see how they are used, let’s do the selection process over again. In this case, we are going to select records by Frequency division alone. We will see some interesting results.

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Looking at graphs and charts, you can look at response rates by Frequency alone:

Go back to the Select panel again, and instead of clicking the RFM field, click the Frequency field. You will have a situation like that shown on the next page.:

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We are now looking at the entire database based on frequency alone. The same could be done for Recency or Monetary.

For some purposes, you may want to select only the customers who have spent the most, regardless of recency or frequency. These three (R, F, and M) fields permit you to do that.

Above you see your customers represented only by frequency. What can you do with such data? This is up to you, as a developing marketer. All of this information is useful, and in the hands of someone that knows what to do with it, it can be a powerful marketing tool. As a minimum, you can graph your customer response by Recency, Frequency and Monetary alone, in addition to looking at response by RFM cell. For some situations, particularly financial services, monetary may be more important than the other factors. Looking at each one individually can help you

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draw important conclusions about your customers and their behavior.

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8 Count, Compare and Reformat

There are several features of RFM for Windows® which are extremely valuable in their own right. Among these, of course are Sort, and Append – which can be used on any database without RFM coding. This chapter discusses three functions that you should explore for their value to you as a marketer. Lets start with Reformat.

Reformatting Database Records

You can revise the format of any existing database by using the Append function of RFM for Windows® as a reformatting engine. To do this, we will use the file called Dummy.csv which comes with your software. Use it as the new file for appending – even though it contains no data. To illustrate how this is done, let’s reformat Demobase.rfm. What we want to do is to eliminate the fields of recency, frequency and monetary amount, and the fields of R. F. and M, and put the RFM field right next to the customer number. Here is

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way it is done. As you see, we have clicked the fields we want in the output and used Dummy.csv as the new file. When we run the program, here is the result:

You may not need this feature very often, but it is comforting to know that it is available.

Using Compare to Improve your Marketing

Compare is used to determine the differences in the data in each of your divisions: R, F and M. Why would you want to know this? Because good marketing results in narrowing the differences. For example: if you are doing a good job, your differences in the highest divisions of Recency become very narrow indeed. We will run compare once to show what we mean. Using Testmail.RFM, let’s run compare and see the differences.

Here is the setup:

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And, here is the result::

Using Count

Count comes in handy on many different occasions. It is used to count the number of times that a particular value occurs in a field. For example, you can use it to count the number of customers by state, by city, by products

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purchased, by date, by last name, etc. To use count, you open the file you want to count and click the count button. This button is the eighth button from the left, a hand holding a piece of paper. When you click this button you will see the following panel:

We are going to use the count function to count customer’s first names. For this reason, we have located the first name field (Field 2) which contains the name Jeff. Since the first name field is alphabetic, it is a string. All we have to do now is to put in a report title and click count. We will enter the title; “Count of First Names in the Database”. Here is the result of clicking count:

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As you can see, the first names are listed in alphabetical order with the number of names following. You can count anything that has up to 1,000 unique values. You can print the results of your count by clicking the print button, and can save the results of your count by clicking the save button. This permits you to recall the counts again at any time without having to rerun the count.

You can also copy the count to the windows clipboard so that you can paste it into another program, such as Excel. Here is the result of copying the count into Excel:

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9 Updating your customer database

When to update

As soon as you have run RFM for Windows® and selected a test cell, using an Nth, you should immediately update your customer database. Databases should be ready for action at all times. Every day you receive orders, changes of address, deletions, and new customers. These should be added to your database on a regular basis, so that the next time you communicate with your customers, the data will be correct.

How to update your database

There are several ways in which this can be done. The most common, and practical way, is to make a complete copy of your database when you export it into comma delimited format. RFM for Windows® will add five fields at the end of your database. They are: R, F, M, RFM, C.R, of course, stands for the recency code. F for the frequency code, M for the monetary code, and RFM for the RFM code. C stands for the test group code. If you created a test group, RFM for Windows® will add a code after the RFM code that identifies this record as being in your test promotion group.To update your database, simply Import the output of RFM for Windows® as your new database. You will find that RFM for Windows® has left everything unchanged. All the data and fields are in tact, except for the additions at the end. When you import your data into your database, everything will look and be the same.

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When your database does not import comma-delimited

If your database system does not include an Export to Comma Delimited and Import from Comma Delimited, you will have to use another method. One method is to use export and import from Excel. There is only one problem with the Excel solution. Excel may ruin your zip codes. New England and New Jersey have zip codes that begin with zero. If you are not careful, Excel will drop the zero, so your zip codes in these states are converted to four digit numbers. Excel has a provision whereby the column that contains your zip code can be formatted as a zip code. If you do that, then the codes will not be ruined when they go to and from comma delimited format.

Another method: the Institute staff is available to write custom code for you to shift records from your database to RFM and back. Send an email to Arthur Hughes at [email protected] requesting a quote for custom code. The price may be less than you think.

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10 A case studyMost successful direct mail offers produce an average 2% response rate. We can live with that. But what if you could find out—in advance—who those 2% are likely to be, so that you avoid mailing to most of the 98% who will not respond? You could get rich very quickly. That is what many companies are doing with RFM for Windows® (Recency, Frequency, Monetary) analysis of their customer marketing databases. A little case history which has been adapted from real life will illustrate how this process works. A participant in a Database Marketing Institute Seminar, who will be called Merrill, used his PC spreadsheet and his company’s database to turn what would have been a $94,000 loss into a $169,980 profit using RFM for Windows®.Merrill’s company is a publisher who we will call Intellex International. Intellex had amassed a database of a million customers from successful sales over a five year period. In their traditional operations, they would create a promotional offer and send it to their entire million name file. Merrill wanted to try something different. He decided to use RFM for Windows® on his one million name database.Intellex, sells educational materials to its customers. Intellex’s database had all the essentials needed for successful RFM coding: the date of the most recent purchase, the total number of purchases, and the total dollars spent by each customer. Merrill’s first step was to use this customer data to create RFM cell codes, based on quintiles.Merrill used RFM for Windows® to do the coding.. After the coding was completed, Merrill created an Nth file of 30,000 customers for a test mailing.. There were about 240 customers in each of the selected RFM cells in Merrill’s test group.

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DETERMINING CUSTOMER LIFETIME VALUE

Running the Test

Merrill created a winning promotional piece offering a new educational product. His “in the mail” cost was $0.55 per piece, including postage, or $16,500. A total of 402 people purchased one or more of the offered products through the test, with an average net revenue per sale of $40.00, making a total net revenue of $16,080. In all, Merrill lost $420 on the test, making his return on investment (ROI) a minus 2.55%. Most people would consider this test to be a failure. Merrill, however, had done his homework and knew how to convert an unsuccessful RFM test into a tremendously successful RFM for Windows® rollout. What Merrill had learned from the test was the response rate of each of the 125 cells to the video offer. He used this test response rate to accurately predict the rollout response.

Computing the Break Even Response Rate

An essential part of RFM analysis is the calculation of the response rate required for break even. Any RFM cell that has a predicted rollout response rate of break even, or better, should be mailed. The balance should not. The formula is this:BE = (mail piece cost) / ( net revenue from each sale)In the case of Intellex, the in-the-mail cost was $0.55. The average net revenue from a successful sale in the test was $40. The break even rate thus was:BE = ($0.55) / ($40.00) = 1.375%Actual response rates are calculated by the formula:RE = (Number responding) / (Number mailed)This rate was calculated for each of the 125 RFM cells, which Merrill put into an Excel spreadsheet. He discounted the test response rates by 13% (because rollouts never do as well as the tests). When he did this, he found that only 34 of the 125 RFM cells had a response rate of 1.375% or better. These were the 34 that he mailed. He did not mail the remaining 91 cells.

His next step was to discount the test response rates by about 13%. This was because he knew that rollouts never do as well as tests. Why? Because marketers, like Merrill,

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always skew their test so as to be as successful as possible. They do things that they can’t replicate in the rollout. To break even, or better, in the rollout, each RFM cell had to have a response rate of 1.38% (BE = $0.55 / $40 = 1.38%). When he computed the projected discounted response rates of each of his 125 RFM rollout cells, he determined that only 34 of them, containing 277,091 of the 1,001,056 customers were likely to break even or better, and therefore should be mailed in the rollout. The remaining 91 RFM cells had a predicted response rate of less than 1.38% (break even).

Response by RFM Cell

RFM Cells

Index of Response 0 = Break Even

555 535 515 445 425 355 335 315 245 225 155 135 115

0

100

200

300

400

500

0

-100

These profitable

cells should be

mailed in the

rollout

These

unprofitable

cells should

not be mailed

Rollout Results

When the test was over, Merrill was ready for his rollout mailing. He used the same creative piece, again with an average in the mail cost of $0.55.In previous years, without the benefit of RFM for Windows® analysis, Intellex was used to massive full file rollouts. To get a basis for comparison, Merrill calculated what would have happened had he mailed the full file of 1 million. His mailing cost would have been almost $550,000 (1 million times $0.55). Based on the test, he would probably have achieved an overall response rate of about 1.14% (-- about 11,406 sales averaging $40 net revenue each, or $456,240 -- a loss of $93,760. Instead, mailing to only the 34 cells whose predicted response rate was break even or better, Merrill

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mailed only 277,091 customers. His predicted response rate was 2.61%. In fact, he his actual response rate turned out to be 2.76% which netted him a $169,980 profit. Profit = Net Revenue - Mailing Cost= (7,647 * $40) - (277,091 * $0.55)= $305,880 - $135,900 = $169,980Return on Investment (ROI) was ($169,980 / ($135,900)Total ROI = 125%

The rollout response rates achieved by the 34 cells that were mailed is shown below. You will note that the rate reduction does not slope evenly from cell 555 down to the last mailed cell, 344, but instead goes up and down based on the personality of each cell. One of the best performing cells in the bottom third is 511 which comprises most of the newest customers to Intellex. Another star performer is 515 -- very recent customers whose total purchases scored in the top 20%. There is a great deal of information to be gleaned by a close study of response rates by cell.

Predicted and Actual Response Rates

555 552 544 541 533 525 522 514 511 445 355 3440%

1%

2%

3%

4%

5%

6%

7%

8%

Predicted Response Rates

Actual

Response

Rates

This chart compares the predicted and actual response rates from the 34 cells who were actually mailed in the rollout. If you look closely, you will see that virtually every cell did better on the rollout than Merrill had predicted. In only eight cells did the rollout do worse than predicted, and then by a very small fraction of a percentage point. What can we make of this? First, Merrill probably discounted his test results by

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too much (he used 13%). If he had used 10%, he would have mailed more and made more profit. Second, however, it shows how powerful RFM for Windows® is as a predictor of customer behavior. How many people can predict sales with this level of accuracy?. If you have a customer database, and you are not using RFM for Windows® for your promotions, you are throwing money away.

The theory behind the success.

RFM is based on some basic consumer laws that seem to have permanent validity. People who have bought from you recently are more likely to respond to your new marketing efforts than people whose last purchase was long ago. This is almost always true for all products and all services. People who buy from you frequently are more likely to respond than people who seldom buy from you. People who have spent a great deal of money with you are more likely to purchase again than people who have invested very little in your products and services. RFM for Windows® links these three ideas into a single three digit number that converts your database into a group of “cells” the members of which exhibit common behavioral characteristics. If a test group from cell 341 has a certain response rate to a particular promotion, then the balance of that cell will have a corresponding response rate to the identical promotion (provided it is made in roughly the same time period). Such RFM cells have far higher predictive validity than models constructed from demographic characteristics, such as age, income, home ownership etc. Why? Because these models are based on who the customers are, rather than on what they do. Predicting purchase behavior based on past purchase behavior is a powerful and profitable marketing tactic. It will always beat a demographic model.RFM for Windows® is inexpensive and easy to do. No outside statisticians are needed. All you need is a database, coded with purchase information over a period of time, RFM for Windows®., and a spreadsheet to keep track of the process. RFM for Windows® only works for customer files where purchase behavior is stored and available. It is useless for prospect files, or for customer files without purchase data.

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11 What is Half Life?

Direct marketing campaigns take time. It is often several weeks, or even months, from the time that the first response to a promotion is received, until the last sale is registered. This waiting time is expensive for the marketer. Typically, a marketer will want to know how successful his last promotion was before he sends out a new one. It is discouraging and expensive to wait several months between campaigns.

Half life computation shortens that waiting time by one third or even less. Half life is defined as the day on which half of the responses (or orders, or dollars) have been received. If you know what the half life day is, and you know how many orders you have received by that day, you simply multiply the total by two to compute the response you will eventually receive to the whole campaign.

In the example furnished with this software, for example, a promotion was sent out in July. The first response came in on July 17th. The last sale was registered 197 days later on January 30th. A total of $133,747.68 was received. But half of that sum had arrived after only 35 days. Using half life analysis, you can multiply the sales received by the half life day by two and know with a fair degree of accuracy how much you will get by the time the campaign is over.

How accurate is half life analysis? Isn’t it possible that one campaign will have a half life of 35 days, and another one have sixty days? If this were true, then half life would be useless as a marketing tool. The accuracy of half life depends on the similarity of the product, the offer, the customer base, and the time of year. Of course if you have one offer that requires all orders to be in by March 15th and another with no closing date, they may have quite different half life days, even though the same product is involved. Whether half life will

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work for you depends on your ability to understand your offers, and your customers.

Half life computation has been used by marketers for more than fifty years. It works. Its principal value lies in its ability to predict the future before it has happened.

For example, suppose you have three different prices for your product: $39, $59 and $79. Which will generate the most sales and profit? The only way to find out is to send out three different offers, and wait for the responses to come in. Supposing that you have a rollout file of one million names. You don’t want to blow a half a million dollars mailing an offer to this file with the wrong price. It may take six months before your test campaign is over. You don’t want to wait. The solution is to mail three test offers to 30,000 at each of the three prices. If your half life day is day 35, for example, you can multiply your responses to each offer received on that day by two and accurately predict how each offer will succeed. There are really only two possibilities: One of the offers will be the most successful, or none of them will be successful. On the 35th day, you will have that answer. You can go ahead with your rollout to the one million file with confidence in your result.

How to compute half life

RFM for Windowsprovides an elegant method of calculating half life. As input, you need a campaign response customer file that has, as a minimum, the date that each response was received. You can also have the quantity of product ordered, and the total dollars spent by each customer. If you have such data in a file that RFM for Windowscan read (comma delimited, fixed field, or dbf), you open the file using RFM for Windows. Next, click the half life button, as shown on the next page.

The button looks like a calendar page. It is in the center of the line of buttons across the top of the page.

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When you click this button, you will see the following:

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Find the appropriate locations in your input file by clicking the arrows on the right side of each box. Fill in the date of the promotion, and the name of the promotion. Click Detect to determine the date format. Your screen will now look like this:

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The graph above shows the daily responses from the beginning of the campaign until the end. As you can see, there were 1,804 responses over 197 days. Half of those responses (904) came in by the 35th day. This is the half life day. It took 162 days for the other half of the responses to arrive. From this you can see how handy it is to have the half life calculation

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made for you. You will know on Day 35 how things will turn out on Day 197!

Here are some more views of half life. Here we are looking at revenue.

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In 3-D we can see the revenue half, third and quarter days. At the bottom of the graph, you see that we can save the graph by clicking the Save button. We can copy the graph to the clipboard and print the graph and chart on our printer.

Using these half life graphs, you will rapidly learn how to manage promotion campaigns so as to conduct rapid profitable tests. You will move faster, save money, and become a master marketer. Congratulations.

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12 What is SDF?There are many formats for data in PC files. Among them are comma delimited, DBF and fixed field. Comma delimited is a format in which each field (such as Name, Address, City, Zip) is separated from other fields by a comma. These fields may also be in quotations (“) so that fields that do actually contain commas can be properly distinguished. DBF format is used by most database software programs. Fixed field format (SDF) is one in which each field has a fixed length. There are no separators between the fields.

An example of a fixed field (SDF) format would be this:

Field Name Length Begin EndName 30 1 30Address 20 31 50City 25 51 75Zip 5 76 80

The total record length is 80 bytes. The City begins in byte 51 and ends in byte 75. Even if City is a little name like Troy, it still uses up 25 bytes, the balance of the field being filled with spaces. If the data is too big to fit into a fixed field, it will be truncated or lost. For example, in the above example, if the zip code is longer than 5 bytes, the extra bytes will be lost, since the field is fixed in size.

In a comma delimited format, there is no limit on the size of a field. There is a comma separating each field. If the zip code is longer than 5 bytes, there is no problem. It can be 10 bytes or 100 bytes. There is no limit.

Most mainframe computers use fixed field formats and cannot easily read or convert data to or from comma delimited format. They output their data onto magnetic tapes and cartridges which are typically in fixed field format. Most PC programs are written for formats other than fixed field. The formats used by such programs as Lotus, Excel, Access, or any PC database system are seldom in fixed field format.

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These differing formats make it difficult to exchange data between mainframes or minicomputers and PCs.

RFM for Windows is written for data in comma delimited format, since this is a fairly universal PC interchange format. Many users, however, have their customer data on mainframes which are in fixed field format. For this reason, RFM for Windows includes a function which permits users to convert data which is in fixed field format into comma delimited format. RFM for Windows also converts data in comma delimited format into fixed field format. This manual supplement explains these functions.

Fixed field format files can have any PC extension, or no extension at all. By extension, we mean the three letter suffix after the file name. DEMOBASE.SDF is an example. Demobase is the name of the file, and .sdf is the extension. Sdf is a sign that the file is in fixed field format.

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13 Exporting to SDF

Let us assume that you have data in comma delimited format, or dbf format and you want to convert it into fixed field format. The first step is to load the program RFM for Windows and open your comma delimited file. To make life easy, we will assume that you are using the Demobase.csv supplied with the RFM for Windows software. When you open this file, you will see a screen like this:

The third and fourth buttons from the left along the top are the SDF conversion buttons. The fourth button is “Export to SDF Format”. Click that button. You will see the following screen:

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If you look at the three boxes on the bottom of the screen, you will see that RFM for Windows has anticipated that you want to convert your file into a fixed field format field of the same name, with an .sdf extension. If you want to give your output some other name, you should change it now. Let’s assume that we will keep the name Demobase.sdf.

Autodetecting the format.

The first step is to determine the format of the comma delimited database you have opened. To make life easy, your database should have a header record which lists the names of each field. The names are shown in the example above. If your database does not have a header record, you should return to the open screen and create a header record before proceeding further. How to do this is explained in the Advanced Tutorial in the manual. The easiest way to begin determining the format of your comma delimited record is to click the Detect Button in the upper right hand corner of the screen. Clicking this button will instruct RFM for Windows to determine the maximum length of each field in your record. Click that button now and see the result:

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The program has checked each field and has determined the maximum length of each field in your existing data. You may accept these lengths, or you may amend the length column to any length you wish. Note, if you make any field shorter than the Max. Len, you will truncate data. If you make any field longer than the Max Len, the program will fill up the balance of the field with blanks.

Lets change the length of several of these fields. We will change the First, Last and City to 20 bytes and the state to two bytes. We will want to save this format for use at a later time. To do this, we will click the save button at the bottom of the screen. This will preserve the format we have created with the unique name of DEMOBASE.FMT. We may want to print this format out so that we can give it to our mainframe programmer. Click the Print button and the format will be printed out.

The next time we do this same operation, we can recall our saved format by clicking the Load button. This will restore the format we saved earlier.

To export to this new format we have created, click the Export button. RFM for Windows will create a new file in

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SDF format. To prove to yourself that the program has been successful, click the open folder next to the name of the new Demobase.sdf output file. You will see that there is a file of that name on the directory RFMSORT. You have exported a comma delimited file to SDF format.

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14 Importing from SDF

In this chapter, we will assume that you have a file already in SDF format that you want to convert to comma delimited format. To make life easy, we will assume that the file you want to import is the one you have just created in the previous chapter, namely Demobase.sdf. In this case, however, we will not use the format that we saved for this database, since that would make the job too easy. We will start from scratch, and work it through step by step as you will have to do on some new format.

We will assume, however, that your database has a header record. This is an important aid in the process. Ask your mainframe programmer to provide you with a header record, if she can, because it makes the conversion easier. RFM for Windows does not require a header record. It is just easier to work with.

To begin, click the Import Button which is the third button from the left along the top of your screen. You will get an open screen. Click Demobase.sdf and you will see this screen:

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You will note that in the middle of your screen, you can see the records as they appear to the program. In the format line, above the screen, you will see the names of the fields in your record. You will notice that several of the fields are run together. The state and the zip field are not properly separated. In addition, the zip and the recency fields are all mixed together. You have to create the separation between these fields. Here is how you do it.

Separating the fields

Click the SDF format field with your mouse between the end of Customer and the beginning of First in the top where it says CustomerFirst. After putting your cursor there with the mouse, enter a | there. The “|” is the character above the backslash key. When you enter the “|” character, you will see the program separate these two words. Next, use your right and left arrows on your keyboard to move to the right and left in the SDF Format Field. When you move right, you will find that State and Zip are mixed together. Put your cursor between these two fields, and enter a “|”. You will see them jump apart:

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Now do the same thing for ZIP and Recency. Put your cursor right before the R in Recency and enter a “|”. You will see that Recency is now fixed.

In the same way, separate Frequency and Monetary. At last, all your fields are properly delineated. You may now import your fixed field format into comma delimited. You do this by clicking the Import button. First, however, you may want to preserve the format you have created. You do this by clicking the save button. You won’t need to go through the field separation exercise next time. Just Load your already saved format and the job will be done for you. If you want to keep a record of your conversion, you can click the print button. This will print out your saved format.

Clicking Import will create a new file in comma delimited format (Demobase.csv) .

You will find the import and export function of RFM for Windows extremely useful if you have a mainframe computer and wish to interchange data with your PC. The function can be used whether or not you are appending RFM codes. It is a handy function to have on your PC, and not one that is available elsewhere. Excel, for example will do the same thing, but Excel can handle only 16,000 records. RFM for Windows will handle as many records as you wish. The Super version will convert 10 million records. The Plus version will convert 1 million records. Even the business

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version converts 50,000 records, which is more than four times as many as you can convert with Excel.

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15 Exporting to DBF Format

Most database software systems use dbf format. RFM for Windows can read this format directly without converting it. Simply click the data as it resides in the database, and RFM for Windows can work with it.

Data can also be exported to DBF format. Unless you specifically ask for DBF format output, RFM for Windows will export your data in comma delimited format. To export in DBF format, you must click the DBF format export button. This button is to the right of the SDF format buttons. When you click this button, you will get the following screen:

If you have already saved the correct dbf format, you may click the load button at the bottom, and load a previously saved format. Then you click save, and the data is saved in that format.

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Creating an output format

If you have not previously saved a format, you must create one. You can begin by pressing the detect button which determines the format of the data in your existing file. It will count the number of bytes in each field and show them next to your format. Here is an example of this type of detection:

As you can see, it has computed that in this case, each field

has 8 characters. It assumes that all fields are a string – as a default. Before you go on, you may want to correct the field

definition types as shown below:

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TROUBLE SHOOTING

As you can see, the field lengths have disappeared. You must enter them as you require for your database. Here we see the field lengths entered:

If your lengths are correct, then click the save button to save the format so that the next time you won’t have to go through the detection and field definition process. Click the date detection button to get the correct date format. Then click the export button to export your data in the dbf format.

If you are creating a new format, you must also enter each field type if it is not a simple string. The field types are C – String, N- Number M- Currency D- Date and L – Logical.

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16 The Aggregation FunctionThe Aggregation Function is used to combine a file of orders with a customer database. Each file must be sorted in customer ID order, which must be present in both records. For new users, a demonstration database is used for this function: Custhead.csv, and Orders.csv.

For some customers there are no orders. For some there is one order. For several, there are many orders. Here is the order file:

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TROUBLE SHOOTING

This function will work with each customer record, finding all the matching orders and finding the most recent date, appending that date to the customer record, which is called Custhead.agr. In addition it finds the total items purchased, which it uses to create an Aggregation Quantity field. It adds up the total dollar amount for each customer which it puts in an Aggregation Dollar field, and it counts the total number of orders placed by each customer and puts them in an Aggregation Count Field. These four field can be used to create RFM cell codes.

Here is the screen needed to set up the aggregation function:

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The report on aggregation looks like this:

The aggregated records look like this:

This is a very useful function for anyone wanting to do RFM.

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17 The Audio Tutorial

The tutorial consists of a number of screen shots with actions, sound and, in many cases, music. This is the main menu screen of the tutorial.

You will notice that there are five choices. The first three are separate sections of the tutorial. The fourth takes you to the program itself.

Once you are in the main program, you may return to the Tutorial at any time by clicking the word Tutorial next to Help on the top of your RFM for Windows main screen.

Click on any one of the first four choices to view and hear an audio tutorial. On the next page is the first screen you will see after you click number 1.

What you are seeing here, is the main screen of RFM™for Windows®, with some tutorial description at the bottom, and four colorful buttons that let you advance the tutorial program.

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If you have speakers on your PC you will also hear music and a captivating voice that leads you through the demonstration. To advance the screen after you have heard each description and seen the program work, click anywhere on the screen. You can go back one step at any time, exit, or return to the main menu whenever you want. There are about 15 screens in each chapter of the Tutorial. Each chapter takes about four minutes to run. When you have finished the tutorial you will be ready to go to the main program.

When activity ends in the tutorial, you have to click the screen to advance the program. You can click the colorful buttons in the lower right hand corner only when the tutorial activity has halted. While the activity is going on, the buttons cannot be pushed.

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18 Importing and Exporting from Excel

RFM for Windows imports and exports files from and to Microsoft Excel. It does not read Excel files directly, but has to import them. Let us assume that you already have a file created in Excel. To get started you click on File:

Clicking on Excel, you get this screen:

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Clicking on Open you get this screen:

Click the down arrow on the Select box and you get this screen:

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EXCEL

Now click Import:

You will note that RFM for Windows has renamed the file from Demobase.xls to Demobase.clv because it has not read the file it has imported it.

From this point on, everything you do with the file follows the normal functions shown throughout this book.

Exporting to Excel

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Lets say that you have created a RFM file, and you want to export it to Excel. Here is how you do it. First open the file you want to export:

With the file open, click on File Export to Excel:

This brings up the following screen

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EXCEL

You will note that all fields are automatically marked with a “C” for String. You can change those that you wish to change to dates, or currencies, etc. You may want to detect the data field. Clicking Export you get this result:

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When the working has finished, your file will be exported to Excel. Using Excel to open it, it will look something like this:

Be sure to remember that RFM for Windows cannot OPEN an Excel file. It can only IMPORT it. It cannot save a file to Excel. It can only Export it.

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19 Trouble Shooting

Following are answers to some of the most common questions involving trouble using RFM for Windows. If you encounter any problems not listed here, email your question immediately to [email protected].

Setup does not work. If you have already installed an evaluation version of RFM for Windows on your computer, you may not install another one. Setup will not work. Solution: purchase a production version of RFM for Windows. It will install and work.

Database Opens, but is not visible. Your database must be in comma-delimited format or dbf or sdf format. If it is in some other format, you will not see it on the screen, nor will you be able to append RFM codes to it. Solution: convert your database to comma delimited or dbf or sdf format. Use Excel (which has that as an export option), or your own database software export facility.

RFM runs, but all records are rejected. Most likely cause is that you have the wrong date format. Solution: (1) be sure that you detected the date format using the detect button. (2) Check your reject file. If your dates are in some format that is not recognized, you must convert them to some other format to use RFM for Windows. Report the problem to Technical Fax Help with samples of your database date format.

Clipboard or Select panel shows Stop Invalid RFM field. You are trying to select records or put your RFM codes onto a spreadsheet using the Clipboard, but you get this discouraging message. There are two possible causes. (1) you have indicated the wrong RFM field in your record (note:

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you may use the select or clipboard facility with RFM, or with R, or with F, or with M) or (2) you do not have your RFM coded database opened. Solution: Check that you have the RFM coded database opened. If it is not, go back to the main screen, click Open and open the RFM coded database (has a suffix of RFM). Once that is done, be sure you have clicked the correct field in your database record.

Print Button on Main Screen does not work. The print button enables you to view and print a report on RFM coding that has just been completed. RFM for Windows does not save old reports. Once you have run RFM for Windows to append RFM codes to a database, a report is available and may be printed as often as you wish. If you end your program and reload it, the report is lost forever. The Print Button will not work until you have run another RFM code appending operation. Solution: Always view and print a report as soon as you complete RFM coding of a database.

Some data columns are half hidden and cannot be seen. When you open a database using RFM for Windows, all columns are of identical size. About 9 or ten characters are visible, and the rest (while they are really there) cannot be seen. Solution: Click the Header Button on the top right of the main screen. The top record of the database will be visible at all times. Move your cursor to the dividing line between any two fields. Hold your left mouse button down, and drag the dividing line to the right. This will open up the hidden field so that you can view as much as you want.

I can’t change data in my database. Of course not. RFM for Windows is not a database, nor is it a spreadsheet. You may view your data, append RFM codes to it, select records by an Nth or by RFM codes, and copy data to the clipboard. You can’t modify your database records. Solution: To modify records, copy your database into a database system or a spreadsheet and make your modifications there.

When I type on the keyboard, certain panels come up. There are buttons at the top of the main screen which activate functions (such as Clipboard or Select). You can activate these functions without the buttons, by typing a key. If you look closely at the buttons, you will see that there is an underline under certain letters (example: Nth Query). When

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EXCEL

these letters are visible, you may call up that panel by typing the underlined letter. N, for example, will bring up the Nth Query panel. Solution: Observe these letters, and practice bringing up panels without using the buttons. You may find that it is a faster way to use RFM for Windows.

Stop Output file same as Input. Please select a new output file name. RFM for Windows permits you to write over an output file (after warning you about it), but it will not permit you to use the same file for input and output. Solution: create a new name for your output file by typing one in, or selecting an existing file.

I’m trying to open a file that I know is there, but it doesn’t show up on the list of files in the directory when I use the Open Window. RFM for Windows looks for files classified as Tables. Your file may well be in the correct format (comma delimited) but it does not have a suffix which RFM for Windows recognizes as a table. Solution: Click the down arrow to the right of the bar that says Tables in the Open Window. Click “All Files”. Your desired file will appear. Click it and use it.

I want to enter a single byte Omit character, but the box has a “C” there and does not let me type anything in to replace it. Solution: with the cursor positioned on the box, press the delete key. The “C” will disappear. You can type the code you wish.

I want to select a number of RFM cells in the Select panel. Every time I click a new cell, the previous cell loses its highlight. There are three ways to highlight RFM cells on the select panel. First, a simple click. This will give you only one cell. Second, hold the shift key down and drag your mouse over the cells you want to select. This works fast, but it may go too fast for you (if you have a fast computer). Third: with the control key held down, you can click cells individually, one at a time. Solution: use one of the three methods that works best for your selection job.

I did an Nth select. Now I want to select another group, but I don’t want to get the same people. How do I do that? There are two ways. First, if you did the last select on the same database, just change the starting number. For

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example, if you are doing an Nth by 20 (every 20th record) and your first starting record was 1, then you selected records 1, 21, 41, 61, etc. For the second select, choose a starting number of 2. You will select records 2, 22, 42, 62, etc. Everyone will be different. If, however, your second select is much later than your first, and the database has changed in the meantime, this method will not work. Solution: When you do your Nth, adopt the option at the bottom to add a one byte code to the master records. This will produce a database with one letter added to every record that was selected the first time. When you prepare your database in comma delimited format for your next Nth, be sure to omit any records that have that code. Then you will be sure that all records selected will be different from the last Nth.

I’m worried that I am mailing some customers too often. That is a very legitimate concern. RFM for Windows is like taking drugs. It gives you a great high. You can use it to create high profits on your rollout mailings. The bad side of this product is that some people never get mailed at all. How can you build and maintain a relationship with people if you never correspond with them? Solution: Adopt a conscious customer contact policy. Map out an annual contact program. Decide that you are going to communicate with people in the unresponsive cells periodically, Use RFM to select people for reactivation mailings. Use M to select high rollers. Use F to select frequent buyers. Don’t overuse RFM to the exclusion of good relationship building activity.

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20 How to keep up with Database Marketing and Commerce on the Web

While RFM theory and practice is old, database marketing is new. Most people don't know what RFM is. To keep up with the many new innovations and developments in this field, you will have to read books, magazines and newsletters, talk to people and attend conferences. This chapter points you in the right direction. To keep up with the many new innovations and developments in this field, you will have to read, to talk to people, and to attend conferences. Send an e-mail at [email protected], or call the Institute at 954 767 4558 Fax 954 761 1962, or visit the Institute’s web site www.dbmarketing.com.

Magazines

Magazines and newsletters that you should subscribe to are:

DM News. Mill Hollow Corporation, 19 West 21st Street, New York 10010 (212) 741-2095, FAX 212-633-9367 www.dmnews.com

Direct, Intertec Publishing 11 River Bend Drive South, Stamford CT 06907 203 358 9900 www.intertec.com

Target Marketing 401 North Broad Street, Philadelphia, PA 19108 (215) 238-5300 www.targetonline.com

Canadian Direct Marketing News 1200 Markham Road, Scarborough, Ontario M1H 3C3 (416) 439 4083 [email protected]

CRM Journal 1200 Markham Road, Scarborough, Ontario

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http://www.targetonline.com/

http://www.intertec.com/

http://www.dmnews.com/

http://www.dbmarketing.com/



M1H 3C3 (416) 439 4083 email: [email protected]

Card Marketing Faulkner & Gray 11 Penn Plaza 17th Floor New York, NY 10001 Web site: http://cardmarketing.faulknergray.com

DM Review Faulkner & Gray 11 Penn Plaza 17th Floor New York, NY 10001 www.dmreview.com

US Banker Faulkner & Gray, 11 Penn Plaza 17th Floor New York, NY 10001 Web site: www.electronicbanker.com

Bank Technology News Faulkner & Gray, 11 Penn Plaza 17th Floor New York, NY 10001 Web site: www.electronicbanker.com

FutureBanker Thomson Information Services One State Street Plaza, New York, NY 10004 800 221 1809 [email protected]

Financial Services Marketing Thomson Information Services One State Street Plaza, New York, NY 10004 800 221 1809 [email protected]

Teleprofessional 501 Sycamore Street, Suite 120 Waterloo IA 50703 319 235 4473 www.teleprofessional.com

Internet Telephony Technology Marketing Corporation, One Technology Plaza, Norwalk, CT 06854 203 295 2000 www.itmag.com

Card Technology Faulkner & Gray 11 Penn Plaza 17th Floor New York, NY 10001 Web site: http://cardtech.faulknergray.com

Inter@ctive Week 100 Quentin Roosevelt Boulevard, Suite 400 Garden City, NY 11530 516 229 3700 www.interactive-week.com

Internet Week CMP Media Inc. 600 Community Drive, Manhasset NY 11030 847 647 6834 www.internetwk.com

Sales & Field Force Automation 29160 Heathercliff Road, Suite 200, Malibu, CA 90265 www.sffaonline.com

Call Center Solutions One Technology Plaza, Norwalk, CT 06854 203 295 2000 www.ccsmag.com

Books about Database Marketing and the Web

All of the following books are reviewed and ordered at www.dbmarketing.com:

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http://www.ccsmag.com/

http://www.sffaonline.com/

http://www.internetwk.com/

http://www.interactive-week.com/

http://www.interactive-week.com/

mailto:Inter@ctive

http://cardtech.faulknergray.com/

http://www.itmag.com/

http://www.teleprofessional.com/



http://cardmarketing.faulknergray.com/


http://www.dmreview.com/


INDEX

The Complete Database Marketer 2nd Edition, by Arthur M. Hughes Chicago: McGraw Hill Publishing Company 1996, 610 pp. This is, of course, the best book on the subject around.

Strategic Database Marketing 3rd Edition, by Arthur M. Hughes Chicago: McGraw Hill Publishing Company 2006, 400 pp. Even better than the previous book.

The Customer Loyalty Solution, by Arthur Middleton Hughes (McGraw Hill 2003)

The Loyalty Effect, By Frederick Reichheld, Harvard Business School Press, 1996 322 pp. A tremendously stimulating book full of good ideas.

Customer Specific Marketing by Brian Woolf, Teal Books 1996 249 pp. The best book on retail customer card marketing ever written.

Business @ The Speed of Thought by Bill Gates Warner Books 1999 470 pp Filled with very good ideas and case studies. You need this book.

Data-Driven Business Models by Alan Weber Racom 2005. How to build your business in a logical and strategic manner.

The Business of Database Marketing by Richard Tooker, Racom 2006

Email Marketing by the Numbers by Chris Baggott. John Wiley & Sons 2007. A really good book on email marketing.

Customers.Com by Patricia Seybold Random House 1998 360 pages. An excellent introduction to customer relationship marketing on the web.

Permission Marketing by Seth Godin, Simon & Schuster 1999 255 pp. An excellent short study of the concepts espoused in the book you are reading now.

Business-to-Business Internet Marketing by Barry Silverstein. Maximum Press 1999 398 pp. The best treatment of this subject to date.

2239 Tested Secrets for Direct Marketing Success. by Denny Hatch and Don Jackson. NTC Business Books 1997 358 pp. The title says it all. Thousands of nuggets of profitable ideas.

Conventions & Seminars

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The following three events are probably the best two or three days you could possibly spend on learning about database marketing. The seminars include small groups of marketers from (mostly) household-word companies. There is lots of interaction and networking. The conferences are held every six months in Chicago, Orlando, and other cities. The conferences are attended by over 1,200 people each time, with over 100 speakers. You will hear about new things, and meet all sorts of people in our business:

National Center for Database Marketing Conference & Exhibition, 11 River Bend Drive South, Stamford, CT 06907-0232 (800) 927-5007

Direct Marketing to Business National Conference 11 River Bend Drive South, Stamford, CT 06907-0232 (800) 927-5007

There are also other valuable database marketing conferences called from time to time by such institutions as Canadian Direct Marketing News (see above) and Target Marketing (also above).

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IndexAggregation, 159Appending purchase data, 120Appending response data, 84Appending RFM Codes, 27Audio Tutorial, 15Audio Tutorial, 163Bad Data File, 29Basic vs Classic RFM, 31Books on RFM, 171Break Even Calculation, 32Break Even Response Rate, 112Case Study, 136Column Width, 62Comma delimited format, 19Compare, 129Compare, 77Conflicting goals of RFM, 111Conventions and Seminars, 172Copy to clipboard, 51Counting data, 96Counting records, 130Date Format, 35Definitions, 12Dummy, csv, 128Experience Adjustment, 114Experience Adjustment, 33Exporting to dbf, 157Exporting to SDF, 149Field locator, 67Finding records, 63Function Buttons, 23Graphs and Charts, 89Half Life, 141Header option, 22Help, 19How RFM Works, 99Importing from SDF, 153Installing RFM, 18Instant success, 108Keeping up with database marketing, 169Magazines on RFM, 170Minimum Test Cell Size, 112Minimum Test Size, 33

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Missing Fields, 36NON-RFM Codes, 104Nth File, 49Nth, 12Numbers option, 23Password, 17Predicted and Actual Response Rates, 115Preparing customer filed, 19Prerequisites, 10Profitable customers, 99Reformatting your database, 128Rejected Records, 29Reports on RFM Coding, 39Responsive customers, 99RFM Cell Code, 12RFM Code Construction, 37RFM Division Numbers, 36RFM Divisions, 111ROI, 93SDF, 147Select records by RFM Code, 53Selecting cells for mailing, 122Sorting data, 97Strategy for use of RFM, 107Testing, 103Tracking RFM Cell Response, 119Trouble Shooting, 165Tutorial, Basic, 59Updating the customer database, 134Viewing Records, 23When not to use RFM, 109Why RFM Works, 99Windows Terminology, 11

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about rfm ™ for windows®

Documents

rfm codes

rfm fields

windows terminology

windows users guide

rfm division numbers

results of rfm coding

vs classic rfm

rfm field selection