New RFM: CRM Definitions and Metrics
# 40: 12/2003
Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention, Loyalty, Defection
Get the Drilling Down Book!
In This Issue:
# Topics Overview
# Best of the Best Customer Marketing Links
# Question - New RFM: CRM Definitions?
# Question - New RFM: CRM Metrics?
# New RFM Metrics: Take 10 on Retention
Hi again folks, Jim Novo here.
We've got a couple of great customer marketing articles to kick
this issue off. The first is a roundtable on the state of direct
/ database marketing the way the pros see it. The second is a survey
of direct marketers with some great stats on what everybody is doing
and what is working. Following these article links are two
CRM-related questions from fellow Drillers covering some favorite
topics - how Relationship
Marketing fits into the CRM picture, and the use of attitudinal
versus behavioral data in marketing. This last question includes
the "mutual fund analogy" for managing customer value.
Nice timing, huh?
But first, do you know what the most asked question this month
was? "I need to hire a web analytics person. Where
can I find one?" Not such good news for consulting business
mind you, but good news for the web analytics category overall, I'm
happy to see it, and I'm going to do my part. If you have any
openings for web analytics people, or you are one, send me a link to
your online job posting or resume, and we'll try and do some
For example, Drs. Foster & Smith, the nationís leading pet
supply cataloger, has an opening. Check it out by clicking
here. This would be a great company to work for if web
analytics "don't get no respect" where you work now.
The catalog culture lives and dies by analytics, and you'll get the
respect you deserve. The fact this company is one of the best at
the catalog biz out there doesn't hurt either.
OK, enough on jobs, let's do some Drillin'!
Best Customer Retention Articles
This section usually flags "must read" articles about to move into the paid archives
of major trade magazines before the next newsletter is
delivered. I highlight them here so you can catch them free
before you would have to pay the fee. This cycle there were no
great articles from these particular magazines, but there were a
couple of great articles from other magazines. So check 'em out!
Note to web
site visitors: These links may have expired by the time you read
can get these "must read" links e-mailed to
every 2 weeks before they expire by subscribing to the newsletter.
*** View From the Top
November 2, 2003 Direct Magazine
The "big guys" get together and talk about the state of direct /
database marketing and the future. Looks pretty bright to me, as more and
more companies insist on targeting and accountability for their ad spending.
*** Annual Survey- People Power
December 15, 2003 Direct Magazine
Did you know that companies spending over 50% of their marketing budget on relationship
marketing have higher margins? How often the average B2C and B2B
companies contact their customers? Facts like these are in this annual
survey of Direct subscribers.
If you are a consultant, agency, or software developer with clients
needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click
Questions from Fellow Drillers
If you don't know what RFM is or how it can be used to drive customer profitability in just about any business,
New RFM: CRM Definitions
Q: I am working on a project and analyzing the key
variables of CRM and Relationship Marketing
(RM). After reading
extensively the only main difference I see between the two is
that CRM involves systems (technology) which makes RM a part of
CRM. I am also in search of diagramatic models to simply explain
the same. Can you please advise me or recommend to me any sites.
A: Well, I don't know of any sites with diagrams
because I'm not sure many
people have come to this conclusion yet, which by the way, I think is
correct and have said so. I wouldn't use technology as the
"boundary" though, because good RM programs make heavy use
of technology. To me, if you take RM and add Customer Service
integration to it you have CRM, so RM is indeed a component of CRM.
RM itself is made of components, or is the outcome of adding enhanced
technology and strategic purpose to previous database marketing efforts.
At the lowest end of individual customer contact marketing you have
direct marketing, which simply means you have a "list" of
people and you send them something, frequently the same thing to every
person. If you have more data than just the name and address, you can send different versions to different people.
Now , if you collect the results of this effort and attach them to
individuals and change your mailings based on the activity of a
customer over time, you have entered the "database
marketing" world, which would include simple customer marketing models like
If you further modify your efforts by determining the LifeCycle of
customer segments and change your marketing based on the LifeCycle
stage of the customer, you have entered Relationship
least according to the original definition of it.
And I would argue, if you add the integration of Customer Service
and Sales Force Automation on top of this (if either is applicable),
you now have CRM, or CMR, or CVM, or whatever they are calling it this
month. I really don't care what they call it, for me it's simply
about using data to increase profits. The trades can
call it whatever they want. Specifically applied to customer
marketing, it's all the
Anybody / any company who uses rigid definitions of the differences
between all these shades of gray to create a pitch on
"expertise" probably doesn't have a lot of expertise in the
first place. It's easier to look like an expert when you create
a microscopic market.
If you are in SEO and the client isn't converting the additional
visitors you generate, you can help them make it happen - click here.
New RFM: Managing Customer Value
Q: I have been enjoying reading your tutorials. I am interested in
financial planning market particularly and have developed an
for segmentation of market and clients by attitudinal factors. Having
provided my clients (advisers) with the tools to turn the qualitative
into quantitative measures and slice and dice their client base
appropriately, the next question from them is "How do I use this
to do with the information?".
A: You betcha, that's the hard part. A common question when people get into
analysis; the "what do I
this" should really come first so the metrics produce an actionable
Q: I would be interested in providing links on my web space to
papers and content. Do you have any content or case study examples for
marketing and client servicing for the financial planning industry?
A: Well, I don't think I have a page on my site specifically on this
area, but let's create one, OK? I'll include this example in
newsletter and it will go up on my site next month.
Characteristics and attitudes are interesting but frequently not
particularly actionable because they are not "behaviors".
speak of "doing something", they are typically thinking of
decreasing a behavior of the customer. If you are trying to
what to do about a behavior, you really need to use behavioral
which will tell you "who" to do something to and
"when" you should do it for best results.
These are the hardest parts of "doing" because "who" and "when" get to
value of the customer, time management, resource allocation, and
ROI. The attitudinal stuff comes into play after you identify
behavioral metrics and provides
into "how" you should approach clients.
For example, from the prospective of a financial planner, let's say it
desirable to have customers buy and sell securities, and it is undesirable
when they stop or slow down this activity. First, you must come
up with a
measure of this behavior. Then, you can connect this behavioral
certain attitudinal types. If you find certain attitudinal types
consistently behave in certain ways, then you can predict the behavior
(buying and selling securities) based on attitudinal profiles.
And certainly, this is part of what planners and brokers have always
intuitively. They know which clients are prone to trade and so on. The
challenge occurs when the number of clients is too large to remember
these behaviors are, and also in the fact this intuitive system is
looking - it does not "predict" anything, and a customer
could one day
defect to another planner without advance warning - even though the
signs were there all along. But the planner has no "system" to recognize
these warning signs and act on them - the "who" and
What kind of system? Well, let's take the analogy fully into the
securities trading. There are dozens of different technical indicators
that are commonly used in trading - 50-day moving average, MACD, On
Volume, Relative Strength (RSI), etc. Now, think of customers as
You can apply these technical indicators to whatever customer metrics
are looking at - volume of trades, balances on accounts, and so forth.
Customers can have "Relative Strength" against each other.
They can be
engaged in a number of trades that are above or below their 50-day
average, and above or below the 50-day moving average of the
"index" - the
entire customer portfolio. Do you see where this is going?
With securities trading systems, you can set stops or trigger alarms
on changes in the behavior of the security that violate or penetrate
certain indicators like the 50-day moving average. You could
also do this
with the customer portfolio. Much like in securities trading, if
customer's trade volume or balance drops below the 50-day average, there
could be cause for concern.
And what happens, for example, when
a stock owned by a lot of mutual funds drops to the 50-day? It is often
"supported" by mutual fund buying at that level - as long as
something "wrong" with the stock, in which case they just
sell and abandon
If a customer drops to the 50-day in trading volume, they too should
supported, in the form of a phone call or other contact, to try and
them off the 50-day. To allow them to "plunge" below
the 50-day without
"doing something" is to accept the fact the customer is
defecting and just
abandon the customer. If the customer has low value, you might
want to let
them go - especially if you also have high value customers dropping to
50-day who need attention and this requires resources. This kind
resource allocation increases revenues while at the same time reducing
expenses. The trigger is the behavior, the "how" or
approach taken can be influenced by known attitudinal factors.
Is this making any sense to you?
So, let's say a large group of customers fall to the 50-day moving
in their trading volume (or commissions, or whatever). This is
behavior versus the rest of the customers. As a financial
don't want this happening because it means you are losing out on income.
You could then look at the attitudinal measures on this group and see
there are any similarities. If there are, you can draw conclusions and
do something about it. Exactly what would depend on the
and attitudes used, but it is probably at least a contact of some
kind. But you now have the most critical part of the equation - "who"
needs attention and "when" they need it.
You can use a drop to the 50-day - or an On Balance Volume break
zero, or whatever. And then you analyze the results of your
see what worked the best with this behavior on customers with specific
attitudes. Further, you now know something about predicting the future
customers with this particular attitudinal set. When you see
with this set begin to fall towards the 50-day, you can be proactive
and anticipate the move, using best practices from the past.
Finally, since you are familiar with my work, the Latency and Recency
metrics are just two more ideas which happen to be particularly good
enhancing the power of other measures of human behavior. For
customer who has dropped to the 50-day AND the last trade was less
than the average of all customers is somebody who is in a heightened
of probable defection. Likewise with someone who trades on
two days and both drops to the 50-day AND their trade Latency expands
trade every 7 days. If either of these customers is valuable,
should be taken immediately to try and save the customer.
Hope I didn't go to far out of the world on this for you.
really be looked at as a portfolio of assets with differing future
potential for returns, and as such, can actually be
"managed" in the same
way as a securities portfolio. "Managing a portfolio of
customer assets" is often talked about in CRM
circles but rarely implemented in any meaningful way. I find it to be one of the best
"templates" for managing customer value out there.
Let me know if you have any questions!
New RFM Metrics: Take 10 on Retention
If you would like to know more about how to use the new RFM metrics to improve your profitability on the web, check out the free "Take 10 on Retention"
package I wrote. It includes a 10 minute presentation on the strategy and
reporting behind increasing web customer ROI using simple predictive
Here's the idea in a nutshell: when you make investments, you
expect the value of them to rise in the future. You have web
investment choices to make - ad design, media, building out content,
etc. Retention metrics tell you which of these investments are
the most likely to generate increased profits in the future.
Click here for the Take 10 on Retention
That's it for this month's edition of the Drilling Down Newsletter. If you like the newsletter, please forward it to a friend - why don't you do this now while you are thinking of it? Subscription instructions are at the top and bottom of the newsletter for their convenience when subscribing.
Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them
right along to me, along with any other questions on customer Valuation,
Retention, Loyalty, and Defection right here.
'Til next time, keep Drilling Down!
- Jim Novo
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