West Corporation

Posted on August 27, 2013 by West Corporation 



RFM: It’s Not Just for Direct Marketing Any More

One of my all-time favorite books in direct marketing was The New Direct Marketing by David Shepard and Associates (1999). It’s an oldie but a goody. This book is probably the closest thing to getting an MBA in direct marketing, and I had the pleasure of working with David on an engagement years ago.

For those not in the field, RFM is an acronym for “Recency–Frequency–Monetary Value.” Direct marketers would examine their customer base and segment them on these attributes. For instance, if you break each of these components (RFM) into five buckets (e.g., recency = 0 to 3 months, 4 to 6 months, 6 to 12 months, 12 to 18 months and 18+ months), ultimately you would have 125 different cell combinations available (5 x 5 x 5).

Next, they would arrange their accounts depending on the three scores from 1-1-1, worst, to 5-5-5, best. The 5-5-5 group had the most recent purchases, they were frequentpurchasers and they spent a lot of money in these purchases. Each group would get marketing strategies and treatments accordingly. Nine times out of 10, the best group (5-5-5) would out-distance the other groups.

This clearly isn’t rocket science, no Ph.D.s are required (although it doesn’t hurt to have one), but what you might find incredulous is how many times I’ve run into clients who have no form of account segmentation or contact strategy plans. They are more than happy to spend their resources on the best accounts as they are on their lowest performing accounts. This carpet bombing approach is not only costly and time-intensive, but it probably chafes their customer.

At West, when the Center of Analytics Excellence is engaged in any communications or sales campaigning, one of the first things we ask our clients is whether or not they had a contact strategy or a customer segmentation plan in place. Quite often, the answer is no, or it’s inconsistent. When these situations arise, we typically engage in some form of pseudo-RFM segmentation and work accounts smarter, not harder.

The methodology and application of dialing more intelligently really do speak for themselves. In a controlled pre-/post-test environment we had one client experience:

  • 20 percent reduction in the need for sales associates
  • 33 percent reduction in accounts worked, but
  • 15 percent increase in actual customer contacts
  • 83 percent increase in sales dollars

While not every client sees these dramatic results, working a differentiated inventory always is a more efficient and practical way to approach your customers.

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