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Re: RFM

From: Jim Novo <jimnovo_at_sprintmail.com>
Date: Fri 08 Mar 2002 19:45:52 -0600

David Hauslaib typed:

> The "recency" category seems relative.

Absolutely correct, the whole RFM concept compares
customers *relative* to each other, and so is self-
adjusting to different customer sets. There are
no good or bad customers in the absolute, only
relative to other customers.

> But if you are selling used cars, do you really want to
> target a customer for purchase that just bought from you?
> Chances are he is not going to need another car right away,
> but someone who bought from you three years ago might be in
> the market to buy another one.

Recency is not really about products, it's about customers.
Recency says the customer who purchased Recently is more
likely to continue to do business with you in the future
than a customer who has bought less Recently - any kind of
business - get the car serviced, buy add-ons, etc. It
measures the strength of the relationship. That doesn't
mean it makes sense to *market* to them; it just means they
are more likely to continue doing business with you relative
to other customers. Recency indicates a high future potential
customer - even if the potential is down the road several
years.

For choosing marketing targets on long cycle or "controlled
cycle" (like filing tax returns) product, you should use the
related idea of Latency - the average length of time between
purchases. If the average customer purchases a new car
every 3 years, each month that goes by after the 3 year
mark, they become less and less likely to make this *specific
purchase again with you*.

Recency defines likelihood to buy *any* product from you.
Latency defines likelihood to buy a *specific* product
from you. Both ideas used in combination create very
simple yet powerful buyer behavior models you can use to
increase profitability, because they generally focus your
efforts on the most efficient and effective use of
resources - at the point of maximum impact.

Jim

Jim Novo | Author: Turning Customer Data into Profits
http://www.jimnovo.com





Received on Fri Mar 08 2002 - 19:45:52 CST


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