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RFM Analysis

RFM Analysis. Used by catalog retailers and direct marketers Recency : how recently customers have made a purchase Frequency : how frequently they make purchases Monetary : how much they have bought. Illustration of RFM Application. A catalog retailer is deciding which group of

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RFM Analysis

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  1. RFM Analysis Used by catalog retailers and direct marketers Recency: how recently customers have made a purchase Frequency: how frequently they make purchases Monetary: how much they have bought

  2. Illustration of RFM Application A catalog retailer is deciding which group of customers to send a catalog. Based on experience and 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

  3. RFM Target Strategies

  4. Developing CRM Programs Retaining Best Customers Converting Good Customers into Best Customers Getting Rid of Unprofitable Customers

  5. Customer Retention • Frequent Shopper Programs • Special Customer Services • Personalization 1-to1 Retailing • Community Royalty-Free/CORBIS

  6. 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

  7. 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

  8. Personalization

  9. 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. Shopping Buddy

  10. Dealing with Unprofitable Customers • Offer less approaches for dealing with these customers • Charge customers for extra services demanded Don Farrall/Getty Images

  11. Implementing CRM Programs • Need systems, databases • Close coordination between departments – marketing, MIS, store operations, HR

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