University of Washington MBA Program

1. University of Washington MBA Program Managing Customer Relationships through Direct Marketing “Lists/RFM” Instructor: Elizabeth Stearns

2. In store, said “Do NOT put me on your mailing list”. Received these within the next 9 weeks…

3. Remember…Your Direct Marketing Is Only As Good As Your List! The 40/40/20 Rule

4. Navy Direct Mail, Received by Fully Employed Evening MBA… Target

5. Leveraging of Variables in Increasing Response 50% The Right Audience 20% 20% 10% The Right Offer The Right Timing The Right Adv. Elements Image Response

6. Type of Lists • Compiled • Names and addresses derived from directories, public records, newspapers, retail sales slips, trade show registrants, etc., to identify groups of people who have something (single identifiable characteristic) in common. • There is NO information about purchase or response behavior.

7. Type of Lists • Response • Names and addresses of consumers or business executives who ordered and paid for a product or service through the mail. • Response Enhanced • Consumers(purchasers) who have filled out questionnaires and mailed in those questionnaires which describe their demographics, psychographics and specific product buying habits. Can also be enhanced through overlay of lifestyle or other external list. • House List • Purchased or inquired, 5-6 times better results

8. Other Important Selection Criteria • Sex • State • Carrier Route/ZIP • Age • Product or Service Specific

9. Other Important Selection Criteria • Source • Direct mail sold • Print • Other direct mail media • (Renewals, M-G-M’s, Package Inserts, Co-Ops, Statement Stuffers, Syndicated Products, School Marketing) • Broadcast • Telemarketing • Take Ones, FSI’s, ETC. • Warranty Cards

10. Merge/Purge(Cost or savings?)

11. Consider merge/purge by address.

12. Consider merge/purge by address.

13. Merge/Purge Advantages • Previously mailed names are eliminated. • Each prospect gets only one mailing piece. • Current customers are eliminated. • Bad debts are eliminated. • DMA pandering names are eliminated (House pandering also). • Inter-file duplicated are analyzed.

14. Merge/Purge Advantages • Multi-buyers are flagged for remailing. • Nixi’s are eliminated, (NCOA). • Demographic data can be appended. • Phone numbers can be appended. • Carrier route coding provides for postal savings. • Decoys are added in.

15. R-F-M • Recency • When was the last time they purchased? • Frequency • How often do they purchase? • Monetary Value • How much money do they spend?

16. RFM Definition RFM is a behavioral segmentation technique • Typically used to select likely profitable customers to receive direct marketing treatment • It postulates that the most likely prospects are recent purchasers who have historically demonstrated more frequent than average purchase behavior in larger than average dollar amounts • It is based on a correlation between RFM and response • Historically it has proven to be an effective segmentation technique for many situations • The variables RFM are frequently influential in many advanced statistical modeling techniques

17. RFM Definition (cont’d) • The variables must be interpreted within the context of product purchase dynamics • Durable • Consumables • Periodic • Can be used to manage marketing investment by selecting target customers • Can also be used to improve marketing performance by managing message/offer components

18. RFM Elements

19. RFM / Customer Treatment RFM segmentation can be used to manage customer treatment across functions Functional DimensionTreatment Implication Customer Service Service Level Billing Adjustment Practices Collections Minor delinquency action Credit Over limit action Marketing Incentives/Premiums

20. Gains Chart for Responsiveness Mailing Cost: $400/thousand Revenue: $25/response *Index of Relative Responsiveness; Universe Indexed to 100. Source: Direct Marketing, November 1988

21. Remember…Your Direct Marketing Is Only As Good As Your List! The 40/40/20 Rule

22. Thank you!