New RFM: Small
Business B2B Models & ACT!, e-Mail Models
# 42: 2/2004
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 Customer Retention Articles
# Question - New RFM: For Direct Mail Only?
# Question - New RFM: For E-Mail Campaigns?
# Question - New RFM: For SME B2B?
# New RFM Metrics: Take 10 on Retention
Hi again folks, Jim Novo here.
Chock full issue. We've got some fantastic customer retention
article links, including one (Migration Matrix) that describes a very simplified version of
a portion of my own Drilling Down method.
Then three fellow Drillers have questions answered including one on
using customer modeling with a small database and contact manager like
But first, these two jobs are still open for you web
analytics mavens out there:
Foster & Smith, Wisconsin
Karta, Los Angeles
If you have a job in web metrics / customer analysis you'd like to get
to this newsletter audience of about 4,000 send me a link. No charge to promote your analytics job.
Second, the free Website Conversion and Web Analytics Suite of Calculators is now available
in business Spanish, courtesy of the bi-lingual folks at Future Now; click
OK, let's do some Drillin!
Best Customer Retention Articles
This section flags "must read" articles moving into the paid archives
of trade magazines before the next newsletter is delivered.
If you don't read these articles by the date listed, you will have to pay
the magazine to read them from the online archives.
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.
7 Mistakes to Avoid When
Building Customer Loyalty
23, 2004 DM News
Another straightforward, simple list of bullet points one has to consider when
designing a profitable Customer Loyalty
program. What do I mean by "profitable"? Check
Why Marketing Databases Often Fail
January 24, 2004 DM News
Arthur Hughes weighs in again with some rock solid, simple advice you need to
read if you are thinking about a High ROI Customer
Marketing program. For one thing, it is not nearly as expensive
as everybody tells you to create the database that drives the whole thing.
The Migration Matrix
February 9, 2004 Catalog Success
A simplified version of my own Customer Scoring
Grids, a way to create visual maps of customer retention and defection you can use as the "master plan" for managing your entire
Customer Retention effort. If
you like The Migration Matrix, be sure to check
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: For Direct Mail Only?
Q: Is it true that RFM always uses the mail as the only method to
response, or is there any other way that easier and faster to get the
beside from the Internet.
A: Not sure I understand the question, but I think you are asking about
communication media, not the RFM model. You can use any method
communication you want to - mail, internet, telephone, personal sales
calls - it doesn't really matter *how* communication occurs. The
point of the
RFM model is that it tells you **who** to communicate with and **when**
to communicate to maximize your profits and reduce your costs.
So, let's say your only communication method is a personal sales
and you only have one person who can make these visits. Let's
this person only has the ability to make 8 visits in a day. You
this person to concentrate their efforts where the likelihood of
sales or keeping a high value customer is the very highest, and the
scores would tell you this. I hope this is clear to you and answers the question! If not,
please ask again.
New RFM: For E-mail Campaigns?
Q: What do you suppose the per piece rate for e-mail is? We are not sending
out direct mail at all, just permission emails. How can we use
RFM if our
costs are nil for a campaign?
A: Well, I don't know what kind of business you are in, and that would
answering this question. But generally, two things:
1. There are probably costs other than the cost of the e-mail
2. RFM isn't just about reducing cost, it's about increasing
on knowing who to communicate to and when, and perhaps what to say.
Example of # 1: Opportunity costs are all around us, and can be very steep, for
* the cost of giving away product margin with a discount when you
didn't have to
* the cost of over-communicating to someone and having them
* the cost of sending the wrong messages at the wrong times and
losing the customer
RFM allows you to measure and control these costs, maximizing profits.
Example of # 2: RFM "standardizes" what you know about customers by
against each other for present and future value. This allows you
programs and repeat successes over and over and over. If
customers with a
certain score or range of scores respond well to a certain promotion,
customers with this score or range of scores will respond well next month,
the following month, and as far out as you can see. The RFM
you where the customer is in their LifeCycle with you and allow you to
tailor the most effective contact. Once you find something that
you can repeat that success over and over just by looking at a
score, and constantly optimize for higher and higher levels of
So RFM is about more than just reducing the cost of communications; as
pointed out, that is more of an offline play and an example of the
"Old RFM". The new New RFM is about optimizing the marketing mix to
customers who are in different stages
their relationship with you, in order to squeeze out the highest possible
profits from each customer.
I know that last statement probably makes some factions of the CRM community cringe, but business is business. You can still treat customers with respect and earn their admiration while increasing profits. Those having a
"moral problem" with increasing per customer profitability won't be around
for very long, I 'd expect.
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: For Small Business B2B using ACT!?
Q: You say your approach works for any size and any type of
business. We are an audio electronics manufacturer specializing in
commercial installs of professional sound equipment. Our equipment is
through reps (in North America) and distributors (outside North America).
Neither the reps or distributors stock our equipment. Equipment
purchases are on
a project basis with audio and architectural consultants releasing
RFPs specifying particular pieces of equipment. Does your modeling work for such
pure B2B business models?
A: Sure, any business that has transactions with customers can be
modeled. The question really is more like can you **do anything**
information once you have it? If you can't "act" on
the model, it won't do
you much good to have one.
Q: Our company is about $10 million in revenues.
current database is a glorified Rolodex in ACT. I've seen cautionary notes
concerning databases of less than 2,000 customers. We have about
1881 dealers, 102 Distributors, 28 Reps and 712 end-users who (for a
of reasons) can purchase from us direct. We also have about
625 consultants who (hopefully) specify our equipment in projects that may
require a year or two to become a reality.
A: Nothing wrong with ACT!, I've seen some pretty nifty stuff done with
Q: Which methodology should I use to uncover the behaviors of each
of these small audiences and still have some degree of confidence in the
A: Well, in distribution networks like this, I think the primary idea
to make sure you understand the value of each customer relative to
group and be prepared to take action should it look like you should.
The 1881 dealers could be ranked against each other by Recency.
predicts likelihood to buy again. You could then re-score them each month
and see who is rising and who is falling in rank. Combined with
of the customer, you could decide on what action to take, if
So for example, let's say you have two customers, and they both fall
dramatically in rank. However, one has low value and the other
value. You have a salesperson call on the high value one, you
direct mail piece to the low value one. The cost of the
is in pegged to the value of the customer; this conserves resources
ensures you get the highest ROI.
Or take the 102 distributors. A distributor (I'd guess) has more
or predictable order characteristics than a dealer, as in
orders every 30 days, Distributor B orders every 60 days", etc.
This is a
situation for the Latency metric. You basically set up a
"trip wire" for
each that says "if we don't see a new order from A 35 days after
one, call her, if we don't see a new order from B 70 days after his
one, call him".
Once you know the average number of days
for a distributor, you can set something up in ACT! that at 35 or 70
pops up a message "check to see if distributor has ordered".
further know the value of each, you can say "call" for the
low value ones
and "sales visit" for the high value ones. That way
the sales force is
working hardest where the money is most likely to be found.
Customer modeling work doesn't have to be complicated or use fancy software.
more manual doing it this way, but with as few records as you have, you could do
analysis in a spreadsheet and then use ACT! as the "campaign
"CRM system". All you have to do is program "reminders" in ACT!
If the above kind of system can be shown to work, then you have the
justification you need to go ask for a higher level commitment to the program, in programming, people, etc. Some
of the best
"CRM" systems out
there have been built by the company specifically for the company
based on results of "skunk works" programs like the one described above.
And don't sweat the size of the populations, in the above examples,
not like we are trying to predict the outcomes of any campaigns across
populations or do advanced statistics. We're looking at the
individual behavior. And we're simply saying "Hey, there is
a pattern, and
if the pattern changes, we should pay attention to it".
You don't need thousands and thousands of customers to do that.
you only need one. What you do need is to be able to look at the
of behavior of the customer over time, and be able to recognize when
changes. Then you ACT!
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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