rfm analysis

RFM AnalysisUsed by catalog retailers and direct marketersRecency: how recently customers have made a purchaseFrequency: how frequently they make purchasesMonetary: how much they have bought

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Illustration of RFM ApplicationA catalog retailer is deciding which group ofcustomers to send a catalog. Based on experienceand an RFM analysis of customer database:– Average gross margin for customers in cell - $20– Response rate – 5%– Cost of catalog and mailing -$.75

Will the retailer make a profit mailing to this RFM segment?

$20.00 contribution x .05 response rate - $.75 cost = $.25 profit per catalog mailed

RFM Target Strategies

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Developing CRM Programs

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Retaining Best Customers

Converting Good Customers into Best Customers

Getting Rid of Unprofitable Customers

Customer Retention

• Frequent Shopper Programs• Special Customer Services• Personalization

1-to1 Retailing• Community

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Royalty-Free/CORBIS

Elements in EffectiveFrequent Shopper Programs

• Tiered rewards• Offer choices of rewards

– Not all customers value the same rewards– Non-monetary incentives, altruistic rewards

• Reward all transactions• Keep rewards transparent and simple

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Issues with Effective Frequent Shopper Programs

• Expense• Difficulty in Making Changes• Impact on Loyalty Questionable• Easily Duplicated – Difficult to

Gain Competitive Advantage– Need to offer “invisible” benefits

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Personalization

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Converting Good Customers into Best Customers

• Customer alchemy: converting iron and gold customers into platinum customers

• Add-on selling as a way to achieve customer alchemy– Oprah Winfrey– Tesco– Stop & Shop Co.

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Shopping Buddy

Dealing with Unprofitable Customers

• Offer less approaches for dealing with these customers

• Charge customers for extra services demanded

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Don Farrall/Getty Images

Implementing CRM Programs

• Need systems, databases

• Close coordination between departments – marketing, MIS, store operations, HR

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