Category Archives: Marketing thru Operations

New RFM: Using RF or RM Instead of RFM

Analytical Culture, Customer Experience, DataBase Marketing, Driller Q & A, Marketing thru Operations, Measuring Engagement

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

Sometimes the traditional RFM model does not work very well for a specific business model. For example, small business databases can be too small to fill out all 125 RFM segments properly, resuslting in distortions of predictive capability. Optimizing the traditional RFM approach for unique business model criteria is a very useful skill, and it’s actually not difficult if you understand the levers of the business model. To Drill or not to Drill, that is the question …

Q:  I’ve used your site a lot and found it to be very informative.

A: Thanks for the kind words!

Q:  I have a question about the use of RFM analysis for a low margin, eCommerce business.  I read that for a relatively small customer list (<50k) using just the “RF” of the RFM analysis would be preferred since the “M” tends to hide shifts in behavior.

A:  Well, the M tends to smooth shifts regardless of the size of your list.  In addition, if you have a small list, 125 segments is too many to be really useful, so RF at 25 segments in more intuitive.  The real issue with M or Monetary Value is up and coming, accelerating customers.  If you use total spend (M), it will “punish” them with a lower rank.  But the fact is they have more future potential because Recency is low and Frequency is ramping.  Inversely, M tends to reward customers who have spent a lot in the past with a higher rank, though they may actually be declining or defected customers.  Predicting the future is more profitable than reporting on the past, so given a choice, I would drop “M.”  This is especially true on the web, where communication costs are low and changes in behavior can be very rapid.

Q:  My question to you is, since I’m talking about a low margin business, wouldn’t “M” actually be more valuable than “F” for the analysis?  For example, if 40% of my customers are driving 70% of my sales and 100% of my profits, that says that 60% of my customer base is losing me money.  I don’t want them to be given a higher value rating because they’re placing MORE unprofitable orders than someone placing fewer but profitable orders.  You see what I’m saying???

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New RFM: Snapshots versus Movies of Behavior

Analytical Culture, Analytics Education, DataBase Marketing, Driller Q & A, Marketing thru Operations, Measuring Engagement

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

The standard RFM customer model is essentially a “snapshot” of likelihood to purchase (and so perhaps also profitability of campaign) at a given point in time. But what if you took these snapshots and turned them into a movie, looking at likelihood to purchase over time, and what specific inputs affected these changes? Then you’d have a LifeCycle movie / model, which amplifies the power of RFM substantially. Ready to find out more? The Drillin’, the Drillin’ …

Q:  I am in catalog circulation.  We currently use RFM to segment the file and then roll the RFM cells into more manageable segments (this is a new technique to me, I am new to this company, in my former company we mailed by RFM segment).

A:  Hmm…this sounds like a “dumbing down” approach to RFM, but hey, if it works, why not.  Sometimes this is done because the customer base is not really large enough to support 125 segments, and the differences between the segments can become unstable and less predictive unless they are aggregated.

Q:  Because we are in a niche market and we saturate it pretty well, I would like to see which customers are on the edge or falling off (the Latency stuff) and which ones we can “reward” for being the best.  I do not think the RFM analysis shows me that amount of detail.

Continue reading New RFM: Snapshots versus Movies of Behavior →

Free / Pay Web Site Optimization

Analytical Culture, Customer Experience, DataBase Marketing, Digital Analytics, Driller Q & A, Lab Store, Marketing thru Operations, Measuring Engagement,

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

How do we make money on a content site? Free? Pay? Some combination of both? There’s been a lot of guessing and testing by the big media guys on how to work this, but how do the the small segments / little guys make this work, what can be measured to help? What about newer platforms like Substack, how do you measure optimization? On with the Drillin’ …

Jim’s Note: If you don’t know what Recency and Frequency are they are explained here, and RFM is covered here.  “Intensity” is Views per Session, in this case a “proxy” for visitor value.

Q: Hi Jim,

Should we use:

RFI – Recency, Frequency, Intensity
RFM – Recency, Frequency, and Monetary
or
RF – Recency, Frequency

to measure visitor value, and what should these terms ideally mean?  Total Sessions, Total page views, etc.  Also, when you measure Frequency, do you only include the Frequency during a specific period of time (i.e. one month, or one week), or do you include total lifetime activity per user?

A: On the advertising side of the business, I think the page views/session stat is probably the best to use.  The reality of the ad-based business is it doesn’t matter if they come back, you are selling impressions, not people.  I don’t think you have to overcomplicate it with formulas like RF or RFM, because you are primarily dealing with audiences, not individuals.  RF and RFM are about predicting if individuals will come back.

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