Introducing RFM for Windows



RFM( for Windows

Users Guide

The Database Marketing Institute, Ltd.

2100 South Ocean Drive 16A

Fort Lauderdale, FL 33316 USA

dbmarkets@

2007

For Helena

Copyright © 2007 The Database Marketing Institute, Ltd.

All Rights Reserved.

TABLE OF CONTENTS

1 INTRODUCING RFM( FOR WINDOWS® 11

ABOUT RFM( FOR WINDOWS® 11

Before you begin 11

Working with Windows 12

RFM( for Windows® Terminology 13

2 Getting Started 15

WINDOWS RUN INSTRUCTIONS 15

Loading the Program 16

Entering the Password 19

Installing RFM( for Windows® 20

Starting and Stopping RFM( for Windows® 21

Getting Help 21

Preparing customer files for RFM( 21

Comma Delimited Format 21

Opening an Existing File 23

RFM( for Windows® Function Buttons 25

Appending RFM Cell Codes to a Database 29

Creating an Output File 30

Creating a Bad Data File 30

Rejected Records 31

Bad Data Problems 31

Output Sort Specification 33

Basic vs Classic RFM 33

Include rejects with output. 34

Break Even and Test Size Calculation 34

RFM Field Selection 36

Detecting the Date Format. 37

Determining the RFM Division Numbers 38

What if you lack one of the three RFM fields? 39

Creating the RFM Codes 39

Sorting and Writing Output Data 41

Report on Results of RFM Coding. 41

Summary Reports 42

How Summary Tables are Accessed 45

Tabbing from Summary to Summary 45

Saving your report to a file 46

Calling Up Previously Saved Reports 47

How you can use Summary Reports 47

Viewing the output 49

Printing a report on RFM Coding. 51

Creating an Nth File 51

Copy to Windows Clipboard 53

Select Records by RFM Cell Code 56

3 RFM( for Windows® Basic Tutorial 61

PROGRAM LOAD. 61

Opening an input file. 62

Finding Specific Records 65

Starting RFM Coding. 66

Break Even and Cell Calculation. 67

Field Locator Panel. 69

Reports on RFM Operations 71

Selecting an Nth. 73

Copy to Clipboard. 75

Selecting records by RFM code. 78

Compare – Learning more about RFM Data 80

4 Advanced Tutorial – Sort, Append, Graphs and Charts 83

APPENDING RESPONSE DATA 86

Creating Graphs and Charts 91

Counting Data in your Database 98

Sorting Data in your Database 99

5 How and Why RFM Works 101

HOW IT WORKS 101

How the program finds responsive customers. 102

What if you have no time for a test? 105

Adding Non-RFM Codes 106

Why it works 106

Strategy for use of RFM 109

Creating an instant success 110

When NOT to use RFM 111

6 Determining RFM Divisions 113

DETERMINING THE CORRECT RFM DIVISIONS 113

Two conflicting goals of RFM 113

Break Even Response Rate 114

Minimum Test Cell Size 114

Experience Adjustment 116

RFM Test Cells Needed 117

Recency is the most powerful 119

When Data is Lacking 119

RFM Divisions for Small Databases 119

Saving Past RFM Cell Codes 120

7 Tracking RFM Cell Response 121

WHY TRACKING IS NEEDED 121

How Codes should be tracked 121

Appending Purchase Data to your Database 122

Determining the Break Even Response Rate 123

Selecting Cells for Mailing 124

Should you exclude test promotion recipients? 126

Should you exclude test promotion recipients? 126

Should you exclude respondents to the test? 126

Selecting by Recency, Frequency or Monetary 127

8 Count, Compare and Reformat 131

REFORMATTING DATABASE RECORDS 131

Using Compare to Improve your Marketing 132

Using Count 133

9 Updating your customer database 137

WHEN TO UPDATE 137

How to update your database 137

When your database does not import comma-delimited 138

10 A case study 139

RUNNING THE TEST 140

Computing the Break Even Response Rate 140

Rollout Results 141

The theory behind the success. 143

11 What is Half Life? 144

12 WHAT IS SDF? 150

13 EXPORTING TO SDF 152

14 IMPORTING FROM SDF 156

15 EXPORTING TO DBF FORMAT 161

16 THE AGGREGATION FUNCTION 164

17 THE AUDIO TUTORIAL 167

18 IMPORTING AND EXPORTING FROM EXCEL 169

19 TROUBLE SHOOTING 175

20 HOW TO KEEP UP WITH DATABASE MARKETING AND COMMERCE ON THE WEB 180

MAGAZINES 180

Books about Database Marketing and the Web 181

Conventions & Seminars 182

Index 184

1 INTRODUCING RFM( FOR WINDOWS®

About RFM( for Windows®

Welcome to RFM( for Windows®. You have purchased the marketing system that produces more profits from a customer database than any other segmentation method. If you have a customer database of more than 5,000 names, that contains purchase history, and run a test as described here, you should make profits which represent many times the cost of this product on your first rollout offer to your customers. RFM( for Windows® automatically adds RFM Cell Codes to your customer database. With these RFM Cell Codes you can determine your best customers, determine your most responsive customers, and make profits on promotions to your current customers.

Before you begin

Before you use RFM( for Windows® ,you must have certain prerequisites. They are:

An IBM compatible Personal Computer with a Pentium (or faster) chip, 16 megabytes of memory (32 megabytes is better), and storage space on disk for approximately two and a half times the space needed for your customer database.

The Microsoft ® Windows™ operating system Windows XP or Windows Vista, or later versions.

A customer database which contains customer purchase history including most recent purchase date, number of transactions, and total dollar amounts. To be useful, the database should have customer data that goes back for one or more years.

To be used as input to RFM( for Windows®, the data from the database must be in dbf format, in Microsoft Excel format or converted to comma delimited format. Comma Delimited means that every field in the database should be separated by a comma, and those fields that include commas, should be enclosed in quotes. Example:

Hughes, Arthur, 123 Main, “$2,341.00”,95/06/21,456

Stored in each customer record should be the Most Recent Purchase Date. The data must be in numbers (not letters) and may be separated by slashes, dashes or nothing: 030623. The year may be in the form 2003 or 03, but it must be consistent in every customer record.

Also stored in each record must be the Total Number of Transactions or Purchases, since some period in the past, such as the initiation of the database. There are scores of different ways of calculating this number. For a bank it could be the total number of checks written, or the number of months of continuous service. For a phone company it could be the total number of calls, or the minutes used, or months of service. For a department store it could be the total number of visits, orders, or items purchased. Use whatever you can lay your hands on which serves to separate the frequent buyer from the less frequent buyer.

Finally, each record must contain the Total Dollars Spent with you since some date in the past. It could be total dollars spent per year, or total of all year dollars or average dollars per year or per month.

Working with Windows

Before you begin working with RFM( for Windows®, you should understand the basics of Microsoft ® Windows™. Like other Windows-based products, RFM( for Windows® presents an easy-to-use graphical user interface. Because RFM( for Windows® operates in the Windows environment, it uses the standard Windows rules for selecting icons, menus, menu items, and options in dialog boxes.

Before you use RFM for Windows® you should know how to:

■ Choose and cancel commands

■ Move, move within, and cancel dialog boxes

■ Work with command buttons, text boxes, list boxes, option buttons, and check boxes.

Note: for information, refer to the Microsoft Windows User’s Guide.

RFM( for Windows® Terminology

The following table explains the terms you will need to know to follow instructions in this User’s Guide and in the online Help.

Terms and Definition

RFM Recency, Frequency, Monetary

RFM Cell Segment of the customer database with a unique RFM Cell Code

RFM Cell Code Three digit number that identifies each RFM Cell.

Recency Most recent purchase date

Frequency Number of purchases

Monetary Total dollar amount

Nth Test sample of database which is an exact statistical replica of the database

Input File The name of the comma delimited customer file used as input for RFM for Windows®

Output File The name of the comma delimited customer file which has had RFM codes appended to it.

Comma Delimited Database converted to a format where each field is separated by a comma

Test Promotion A test mailing or other marketing effort to an Nth of the RFM coded database. The purpose of the test is to determine the Response Rate of each Test RFM Cell.

Rollout Promotion A mailing or other marketing effort to a portion of the entire universe, based on the results of the test.

Response Rate Number of responses to a promotion to each RFM cell divided by number mailed to that cell.

Break Even Rate The Response Rate for an RFM cell which exactly pays for the cost of the promotion to that cell. Equals cost per piece mailed divided by the average net revenue per sale.

Contacts Contacts refers to the number of people contacted in a specific promotion. For direct mail, it would be the number of pieces mailed.

Divisions This word refers to the number of breakdowns of Recency, Frequency and Monetary. If we divide Recency into five groups, or quintiles, each is called a division.

Order Margin This is the net revenue per successful sale. If you sell something for $100 which costs you $40, and the telemarketing, fulfillment, credits, returns, etc. cost you another $15, then the total cost is $55 and the order margin is $45.

Cost per piece. The cost per piece of an outgoing promotion (direct mail or telemarketing). This would be equal to the total cost of the creative, printing, personalization, inserting, mailing and postage.

2 Getting Started

Windows Run Instructions

When you get the RFM( for Windows( CD, put it into the CD reader of your computer. Typically, the CD reader is the D drive, but it may be the E drive or some other letter. For this manual, we will assume it is the D drive. If it is some other drive, just substitute the correct letter for D in the following instructions.

RFM™for Windows® release 4.5 works with Windows XP or Windows Vista or any later version of Windows. The following instructions assume that you have Windows XP, but the routines are similar for the other software systems.

With the CD in your CD reader, hit the Start button, and click Run. Enter D:\Setup.exe. The setup program will load. It will ask you for your Name and Company and a serial number. The serial number is located on the paper sleeve in which your RFM™for Windows® CD is contained. Enter that number when called for. Use the Typical program setup.

When setup has finished, it will create an icon that looks like this:

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Loading the Program

Click on the RFM™for Windows® icon, and the program will load. You will see the following screen:

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You may want to go directly to the program, but let’s assume for the moment that you decide to begin with the audio tutorial. Click the right button to view the Tutorial

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To use the audio tutorial, you must have your RFM( CD in your CD reader, since the tutorial works from the CD, not from your hard disk. The program may go directly to the tutorial, but more likely it will at first give you an error screen that looks like this. If so, don’t worry. Click the OK button, and use the following screen to find the location of the Tutorial program on your CD.

Click the yellow up arrow to the right of the Look In box until you find your CD disk (D disk) which will have the tutorial folder on it.

Click on the Tutorial folder and make it jump up to the Look In window. Inside the Tutorial folder you will find the program Demo32.exe. Click it until it appears in the File Name box, then open it.

You will see the first page of the Tutorial. For more on the Tutorial, skip to Chapter 17 of this manual.

Entering the Password

As soon as you enter the RFM program for the first time, you will be prompted to secure a password. You may obtain this password from Arthur.hughes@

All you need is to email this information:

■ Number of records in your customer database

■ Name

■ Position

■ Company

■ Address

■ Phone and Fax

■ Email address

You will receive a password within 24 hours. If you don’t, call Arthur Hughes at 954 767 4558 or email to him at Arthur.Hughes@ and you will receive one by email. The password will look like this:

AQW-BER-GH-77 It must be in ALL CAPS. It must contain the dashes as shown.

Enter your password in your computer when you see this screen:

[pic]

If, by any chance, the password you enter does not work, do not panic. Try it again, and if it still does not work, call one of the above numbers and you will receive immediate assistance.

The password determines the parameters of your program. It determines how long your access to the program is valid, and how many records you may process with the program.

Installing RFM( for Windows®

■ Starting, opening files, and quitting RFM( for Windows®

■ Preparing customer database files for RFM( for Windows®

■ Determining the RFM divisions required

■ Running an RFM Demo

■ Installing RFM( for Windows®

You need the following hardware and software to install and run RFM for Windows®:

An IBM compatible PC. with a Mouse and a VGA monitor

Windows XP or higher, 256 Megabytes of main memory.

4 Megabytes of hard disk space, plus twice the space needed by your customer marketing database for storage or input and output to RFM( for Windows®

1) Insert the Install Disk in your CD Drive

2) Start Windows by typing win and press ENTER.

3) From the Program Manager, choose File/Run.

4) Run setup and choose OK.

5) Follow the prompts on the screen to complete the setup.

6) You will need a serial number and a password. For a serial number, use the number that came with the software, or use 66448.

7) For a password, you should contact the Institute at arthur.hughes@ to request a password. Be sure to give them your name, position, company, address, phone, email and where you bought the product or if it is a trial version.

Starting and Stopping RFM( for Windows®

You can start RFM( for Windows® from the Program Manager when you run Windows.

1) Display the Program Manager window.

2) Double Click the RFM( for Windows® icon.

3) To quit RFM( for Windows®, click Exit at any time.

Getting Help

With your mouse. RFM( for Windows® is full of help. Every dialog box contains a button with a question mark. Clicking that button leads you immediately into extensive help dealing with the panel you are viewing at the time.

On the Keyboard. At any time, press F1 to display information about where you are in RFM( for Windows®.

In the Menu. Choose Help to see a menu of Help Commands.

In the Help Window. Click the search button. Help shows you the topics relating to your selection. Select a topic and read it.

Preparing customer files for RFM(

RFM codes can be added to any customer database, providing that the database has three pre-requisites:

1. A field for Most Recent Date

2. A field for Total Number of Transactions

3. A field for Total Dollar Amount

The details of these three fields are covered later in this manual. A customer database containing these three fields (plus other data as desired) can be in dbf, fixed field or Comma Delimited Format.

Comma Delimited Format

Comma delimited format is a file arrangement in which each field (name, address, city, zipcode, etc.) is separated by a comma. Most database software systems have an option for exporting their databases into comma delimited format. If yours does not, you have several other options. If you have Microsoft Excel, you can convert your database to Excel. From there, comma delimited output is one option.

The saved database may have the extension .csv, or .ws or no extension at all. RFM( for Windows® will accept any of these extensions, but will check to be sure that the data is in comma delimited format before processing your files for RFM. RFM( for Windows® will return your data in the same format, with four new fields (ten characters) added at the end of your database record.

A comma delimited file has each field separated by a comma. If the field contains commas, the field has quotes around it. Here is an example of a comma delimited record:

Arthur, Hughes, “Senior Strategist”, e-Dialog",”Fort Lauderdale”,FL,33316

In this record, one field (position) contains a comma, so this field is enclosed in quotes. The remaining fields do not need quotes. Some comma delimited records have quotes around every field, just to be safe. That is acceptable. In a comma-delimited format, every field must be in the same position in every record. The output of RFM( for Windows® is a comma-delimited database record that has RFM codes appended (using commas) at the end of the record. Each record will have appended the following:

R,F,M,RFM

These are a code for Recency, one for Frequency, one for Monetary and all three in one field, separated by commas.

RFM for Windows 4.5 will also accept files in dbf format. It can also export files to dbf format.

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Opening an Existing File

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In the upper left corner there is an Open Button. Click this button and you will see an Open Window.

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Use this browse facility to locate the directory and file name that identifies your saved comma-delimited database. Click this file name so that it appears in the Input File Name box. Click OK.

If you are running RFM( for Windows® for the first time, you may wish to use the DEMOBASE.CSV which is provided with the software. If so, click DEMOBASE.CSV. Click OK. The following screen will appear:

[pic]

To the right of the function buttons on the top, you will see two options: Header and Numbers.

Header Option

This option instructs RFM( for Windows® to treat the first record of your database as a header. Header records usually contain the names of the fields (First Name, Last Name, Address) instead of data. When viewing an opened file, if this button contains an X, the first line remains at the top of the screen. If you click this button, the X will disappear, and the first record will not be treated as a header.

Numbers Option.

In the upper right is a numbers option. Numbers inserts line numbers so you can see where you are in your database. Click the numbers button to turn off the numbers. You will see the line numbers disappear on the left side of the screen. Click again and they come back. Leave them on. They are useful.

Viewing Records. Use the arrows at the top and bottom right to move up and down in your database. Use the arrows down at the bottom to move left and right in the database. With the header option displaying a mark, put your cursor in the lines between fields in the top record on the screen, holding the left button of your mouse down, and open up small fields so you can see the data.

File Viewing Area The area where records can be viewed is called the File Viewing Area. You will use this area to view input files, output files, bad data files, etc. It is the Main Screen of RFM( for Windows®.

RFM( for Windows® Function Buttons

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Along the top left of your screen, you will see 20 function buttons: Open, Import from SDF, Export to SDF, Export to DBF, Create RFM Codes, Sort, Append Data, Nth Select, Select by RFM Codes, Select records by Field, Aggregate records, Count, Graphs and Charts, Compare, Half Life Computation, Copy RFM Codes to Clipboard, Find, Add/Change Header, Convert Date, and Help.

Open. Open is used to open a file for viewing. The name of the opened file is visible in the upper left line below the function buttons. Later on, you will want to view your output and other files. You can use this same screen, opening the files with your open button, and observing them in the same way as you are now doing with your database.

Import from SDF – See chapters 13-14

Import from Excel – See Chapter 18

Export to SDF – See Chapter 15

Export to DBF – See Chapter 16

Export to Excel – See Chapter 18

Create RFM Codes. The RFM button starts a series of activities leading to appending RFM codes to your customer database records. This is the main function of RFM( for Windows®. Be sure that the database to which the codes are to be appended is visible in the File Viewing Area below when you click the RFM button.

Sort. This button permits you to sort any database by up to three fields. This is particularly useful when appending external data to your database, since both match keys must be sorted in the exact same order.

Append Data. This button permits you to merge data from an external file (such as response results from a promotion) into your database. Both files must have a common match key by which they are sorted.

Nth Select. The Nth Select button is used to create a file for a test mailing. If, for example, your database contains 300,000 records, and you want to have a test mailing of 30,000 records, after you have appended RFM codes, you use the Nth Query facility to get a test file which is a statistically valid sample of your database. Be sure that your RFM coded database is visible in the File Viewing Area before you click the Nth Query button.

Select by RFM Codes. The Select by RFM codes button is used to select records by their RFM code. In the typical use of this function, you have had a test mailing several weeks ago. You have the results. Some RFM cells were profitable, and many were unprofitable. You are ready for a profitable rollout. You want to select only those cells that are profitable. Use this function to accomplish this. Be sure that your RFM coded customer database is showing on the File Viewing Area when you click this button.

Select Records by Field. Using this button you can select records by any value in any field:

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Aggregate Records.

The Aggregation Function is used to combine a file of orders with a customer database. Each file must be sorted in customer ID order, which must be present in both records. For new users, a demonstration database is used for this function: Custhead.csv, and Orders.csv. For some customers there are no orders. For some there is one order. For several, there are many orders. This function will work with each customer record, finding all the matching orders and finding the most recent date, appending that date to the customer record, which is called Custhead.agr. In addition it finds the total items purchased, which it uses to create an Aggregation Quantity field. It adds up the total dollar amount for each customer which it puts in an Aggregation Dollar field, and it counts the total number of orders placed by each customer and puts them in an Aggregation Count Field. These four field can be used to create RFM cell codes.

Count. This button is used to count any data in your database record. Click the field you want to count. The program will count up to 1,000 different items. For instance, if your customers have purchased items identified by a UPC code or some other identification, you can use this button to count how many products of each type were purchased. You can use it to count customers by state, or by city, etc.

Graphs and Charts This is one of the most interesting and colorful features of RFM( for Windows®. Once you have coded your database with RFM codes and have done a promotion to your customers, you will obtain response and purchase data. This data can be appended to the database by means of the append function. When this is done, click the Graphs and Charts button. Tell it where the RFM code and the Sales Amount is located. The program does the rest. It will produce stunning colorful charts showing Response Rates, Sales, ROI and other data by Recency, Frequency, and Monetary amount.

Compare. This button is used to determine the relationships between high and low values of recency, frequency and monetary amount in each RFM cell and division. Compare helps a professional marketer to determine how well her marketing program is succeeding. Successful marketing reduces the distance between high and low values in upper cells and divisions.

Half Life Computation. See Chapter 12

Copy RFM codes to Clipboard. The Clipboard button copies RFM Cell Code names and quantities to the Windows Clipboard where they can be pasted into Excel or other window spreadsheets. Be sure that your RFM coded database is showing on the File Viewing Area when you click this button.

Find. If you are looking for a particular piece of data in your database, you can find it using the Find Button. For instance, suppose you are looking for a record that contains an address with the word Crosswind in it. To find this record in the Demobase, click find and the find window will appear. Enter Crosswind in the box and click the address field in your record to highlight it. Then click forward. The database will jump to the record with the data you seek in it.

Add/Change Header Button. This button permits you to create header records where none exist, or to change the headers on existing records. Headers are useful to keep track of the data in your database, particularly when you have a large number of numeric fields.

Convert Date. RFM for Windows permits you to convert two digit dates to four digit dates. To do this you click the Convert Date Button (with January 1 on it) which will bring up the Date Conversion Screen. This screen asks you to enter the location of the date in your record, and specify the incoming and outgoing date formats, including the delimiter (such as \ or / or -). When you click the convert key, the program will rewrite your records in the new format. The name of your file being converted will not change. You will note that it will change 12/23/00 to 12/23/2000. This is wonderful if we are dealing with recent dates. Be careful if the field is birth dates. If the birth date is 04/04/01 meaning April 4, 1901, this feature will convert the date to 04/04/2001.

Help Button. This button with a question mark is available on every screen. Click it to see help for the screen that you are working with at the time. Even better, click F1 when you are working on a particular part of a screen and you will find topical help for that area.

Appending RFM Cell Codes to a Database

With your database (or the demo database) showing on the File Viewing Area, click the RFM function button. You will see the following screen:

[pic]

Creating an Output File

The top bar has a space for the Output File Name. A name already appears here which you can use. You may also type here any unique name (eight characters or less) which you want to use for the output of RFM( for Windows®. If you have already created an output file in the past which you wish to use again you may use the browse button to find it and click it. RFM( for Windows® will warn you before you overwrite any existing file name, so the old data will be not be destroyed.

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Creating a Bad Data File

In addition to an output file name, you must create a Bad Data File. RFM( for Windows® will only accept good data as input. In particular, it looks in three fields for data quality. These are Most Recent Date, Total Number of Transactions, and Total Dollar Amount. If it finds bad data in any of these three fields, it will reject the record (see exceptions below in “Determining the RFM Division Numbers”). RFM( for Windows® separates the records with bad data from the other records in the customer file, and writes them to a separate file. Give this file a unique name with up to eight characters. You may reuse an old bad data file if you wish. RFM( for Windows® will not process your records without a designated Bad Data File.

Rejected Records

The Bad Data File contains the records that were rejected during processing. There are only three reasons why a record should be rejected: It has an invalid Recency Date, an invalid Total Number of Transactions or an invalid Total Dollar Amount. If any one of these things occurs, the record will be written to the Bad Data File and not included in the RFM processing. If this happens, the user will get a clue as to the reason for the rejection. In the RFM coding at the end of the rejected record, there will be three digits, such as 00X. The first digit is the status of the Recency, the second the status of the Frequency and the third the status of the Monetary. A zero indicates that RFM( for Windows® found no errors in this field. An X indicates that an error was found in this field. Note: RFM rejects all records as soon as a bad field is found. It looks first at R, then at F, then at M. If the R is bad, it will reject the record, coding the record as an X00. This does not necessarily mean that the F and the M are correct. It simply means that the R was wrong, and the record was rejected. Look at all three fields when you are correcting records.

Bad Data Problems

RFM( for Windows® assumes that your database files contain three pieces of information: Most Recent Date, Number of Transactions, and Total Dollar Amount. These are the data that are used to create the RFM codes. There must be data in each of these fields for the program to work. Before RFM( for Windows® creates the RFM codes, it will first check the validity of the data in these three areas. If the data is blank or incorrect, the record containing this bad data will not be coded. The bad records will be written to a Bad Data File. Examples of bad data:

Recency: The first record in your file will determine the record type: Date01, 02, 03, 04, 05).

All subsequent records should be of the same type. If any record is not of that type, it will be rejected. Example: Record type is Date01: 1995-09-23. Later a record is encountered that has this form: 95-09-23. This record will be rejected. Example2: a record will have no date at all. This record will be rejected. Example3: a date field that contains a letter (date fields must be all numeric plus spaces, / and -). Records with a letter in the date field will be rejected.

Frequency: Frequency requires a number. Examples 0, 12, 23456, 999443. All acceptable. Commas are also acceptable: 23,456 or 223,334,001. RFM( for Windows® will omit the commas from these fields in doing the sort. 223,334,001 will become 223334001 in the sorting process. Not acceptable: blank records or records containing a letter. These will be rejected.

Monetary. Acceptable: 23, $23, 5600, $5,600, $45,234.67, 0.67, $0.33. In other words, you may have dollar signs, commas and periods (to designate cents). Not acceptable: a letter or a blank field. (For Non-US currency symbols, thousands separators and decimal signs RFM for Windows® provides exceptions.)

Output Sort Specification

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The output from RFM( for Windows® may be sorted in one of two ways: RFM order or Input File Order (the default). Before you proceed to the next panel, check the order in which you want your output records sorted. If you later want to append data to your records, you may want to keep them in match-key order. You can always resort them into a different order at any time.

Basic vs Classic RFM

RFM(for Windows( is designed to sort records by the classic format which results in all files being of the exact same size. For some purposes you may want to sort records by the old fashioned (Basic) technique. If you do you will get this message: [pic]

Include rejects with output.

You have an option to have the rejected records included with your output records. This may be useful if you want to update your database from the output of RFM for Windows® directly. The rejected records receive an RFM cell code of 000. If you want this result, check this box on the panel. Then click next.

Break Even and Test Size Calculation

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There are eight data areas to explain here.

Cost Per Piece Mailed. This box assumes that you are going to plan a promotion to your customer database. It could be by mail, by phone, or in some other way. Cost per piece mailed includes all the cost of the promotion: creative, printing, data processing, personalization, postage. For telemarketing, it would be the cost per call made. For business to business, this amount could be over one hundred dollars. Your can use the arrows, or enter the data directly yourself. If you are not planning an immediate promotion, fill in the data from your last promotion so as to be able to complete this panel.

Net Revenue Per Sale. (Order Margin). This box asks for the profit from a successful sale to one person. A couple of examples will suffice. Suppose you are selling women’s outer coats which sell for $200. The coats cost you $100 wholesale, and your costs of fulfillment, overhead, credit, and returns is $30. Your net profit is $70 per coat sold. Second example: you are using this mailing to bank customers to sell a home equity loan. You have figured the lifetime value to the bank of a typical home equity loan customer at $2,280. You calculate that for every thirty applications that are completed, you get one new home equity customer. That means that the lifetime value of a home equity inquiry is ($2,080 / 30 = $69.33) This is the figure you would use for Net Revenue Per Sale.

Break Even Response Rate. This is a mathematical calculation that is derived from the first two boxes. If, for example, your home equity promotion costs $0.72 per piece and the lifetime value of an inquiry is $69.33, then the break even rate is 1.04%. Any RFM cell that has a response rate of 1.04% or higher will make money. The others will be losers.

Minimum Test Cell Size. This is also mathematically derived from the Break Even Response Rate. It is equal to 4 / BE. In the case above, it is 4 / 1.04% = 385 records. What is the reason for this formula? It is this: One sale in an RFM cell could be mere chance. Two sales could be two accidents. When you make three sales in a single cell, you have a certain assurance that the customers like the product. Four sales confirms it. To get enough candidates for four sales, you divide the break even rate into four, giving you the minimum test cell size. Is there a better way of figuring this number? There probably is. If you have a better way, by all means use it. This way will do until a better one comes along.

Experience Adjustment. After you have used RFM( for Windows® for a while, you will become quite professional at the business of making profits with your database. You will learn that there are two ways to create profits: by increasing sales or by reducing costs. You will become an expert at both. This is where the Experience Adjustment comes in. From the preceding paragraph you will note that the formula for the minimum test size is 4 / break even response rate. After a while, you won’t be satisfied with 4. You will decide that, for you, you can get away with 3.5 or 3.2 or some other number, and still have accurate results – accuracy being measured in how close your Test Response Rates come to your Rollout Response rates for each cell. The smaller your test cells, the lower your costs (but the less accurate your predictions). Once you develop some experience you can reduce your experience adjustment from 400 (=4) to 390 (=3.9) etc. Make it as low as you feel you can get away with and still have good predicting ability.

RFM Cells Desired. To use this data area, you must have an idea of your test budget. If, for example, you have been allotted a test budget of $20,000, then with that money you can mail only so many letters. At $0.72 per letter, you can mail only 27,777 letters. Click the arrows at the right until the test budget figure matches your budget. You will find that you can have only 72 RFM cells.

Test File Size Required. This is another mathematical number which is derived from multiplying the RFM cells desired by the Minimum Test Cell Size. The smaller the test file, the less expensive are the tests. When you have the RFM cells desired, click Next. Prev. Takes you back one screen. Back takes you back to the beginning again.

RFM Field Selection

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This screen asks you to locate Recency, Frequency and Monetary in your database record. You do this as follows:

Selecting Recency Click the arrow to the right of the Recency Field box. All the fields in your input record will be displayed, each with a field number. They will appear somewhat in this order:

1 - Arthur

2 - Hughes

3- $2,134

4 - 97/04/15 ................
................

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