When RFM Isn’t Enough

Most mailers successfully mail their customer file via some form of recency, frequency, or monetary value (RFM) segmentation. According to Blair D. Barondes, senior vice president for White Plains, NY-based list firm MeritDirect, for most catalogers that translates into not mailing to customers who haven’t bought within the past three to five years.

“Maybe you will mail two-times-plus buyers going back another 12 months,” Barondes says. “Maybe you have even tracked Web buyers vs. catalog buyers and found that the Web buyers degrade a little quicker, moving up the line for those inactive Web buyers to the two- to three-year-old range. And off you go mailing this group 12-24 times per year.”

But blindly mailing every one of the customers in the highest-ranking RFM cells with the same frequency isn’t cost-effective. “The problem most mailers face is that the dated and very limited information you have collected from just one purchase from that customer is simply not sufficient,” Barondes says.

That’s why he recommends that mailers append external data. Business marketers should invest in firmographic data, such as number of employees; consumer mailers should append demographic information such as household income. This extra information, Barondes says, “can begin to tell you if the customer is in your sweet spot.”

B-to-b mailers that use multiple sources for enhancement can achieve response rates that are 25% higher than using one source alone, Barondes says. “Cooperative database participants can even receive verification that buying activity is occurring at that location or by that individual from a multibuyer flag,” he adds. “Now you can qualify those inactive, one-time purchasers as to which fit your customer profile and which have current DM activity.”

Barondes says that MeritDirect’s reactivation regression models have been able to identify the 10%-20% of customers who might respond at five times or more the average response rate. Conversely, you can identify another 10%-20% of customers who are likely to respond at one-fifth the average response rate. “Imagine now that you mail the bottom deciles four times a year instead of 18, saving 14 mailings to 10% of your file?” he continues. “If you have 500,000 customers and pay $600/M to mail your catalog, you just saved $420,000.”

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