Back to Basics: RFM

Posted by Daryl Choy on February 2, 2008

2 comments | 3137 reads

In database marketing, frequency is one of the three core variables. The other twos are recency and monetary, together known as RFM.

RFM analysis helps marketers segment market, and develop effective marketing strategies which maximize ROI, or return on investment. In Handbook of Market Segmentation, Art Weinstein defines "recency as the last service encounter or transaction; frequency assesses how often these customer contact / company experiences occur; and monetary value probes the amount that is spent, invested, or commited by customers for the firm's products and services."

Customers with the highest RFM worth the most attention, where those with the lowest require either win-back or defective strategy to move them up or remove them from the tier.

Among the three variables, F is the most important. Although M gives solid results, which provide the nutrition to survive, without F, or the heartbeat, nutrition is meaningless.

Same applies to touchpoint. The more frequent the touchpoint, the better the relationship.

But, is that a fact?

Nothing lasts if the frequency is high but the chain is filled with negative touchpoint experience. The relationship may seem promising during the initial stage, but it will eventually fail. If the frequency is low but with positive experience, it stands the test of time.

The next factor, or actually the critical success factor, is experience.

Daryl Choy

Daryl Choy has worked with companies of various sizes, from multinational corporations to small and medium enterprises in a wide variety of industries. His responsibilities have ranged from sales and marketing to system development and human resources.

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2 comments »

Graham Hill

February 3, 2008

Not Frequency But Value

Daryl

I agree with you that you should use Occam's Razor as a guide in business life. You should stick with a simple model like RFM, but only to the point where the model is no longer adequate. Then you should change to a better model. The RFM model is but one of six or more different types of customer value model and isn't the best in most circumstances.

And so it is with customer experience.

It isn't the frequency of touchpoints that creates a strong relationship, but the value delivered during each touchpoint. If the touchpoint doesn't deliver value from the customer's perspective, then it isn't going to strengthen the relationship. I see my auto dealer once a year so that my car can have an inspection. I wouldn't dream of going anywhere else, even if it was a bit cheaper. But I don't want to go there to have my car serviced twice a year, even if the second inspection was free. My car (a Toyota) doesn't need the extra inspection. There would be no value in having one. It doesn't matter how many times the customer experiences the touchpoint. The value delivered is what matters.

Sometimes, as in this case, less is more.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Daryl Choy

February 3, 2008

Positive Touchpoint eXperience

Graham

Thank you for clarifying my post. I couldn't agree more that it is the value that matters.

In my little model Touchpoint eXperience Management, that value is defined as positive touchpoint experience.

Daryl Choy, the founder of Touchpoint eXperience Management, helps firms make a difference at every touchpoint. Choy can be reached at wisdomboom.blogspot.com.

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