Control Marketing Costs, Increase Effectiveness with RFM Approach to Databases

B2B companies should borrow a page from catalog sales companies that use the tried-and-true approach of determining Recency, Frequency and Monetary values to gauge the effectiveness of marketing.

By Jim Nowakowski, President, Accountability Information Management, Inc.

A database is a collection of organized information; it’s a list. Many companies have such databases, but they are difficult to access. Databases that are effectively maintained are assets to companies and organizations that can use them to monitor data for marketing purposes, including tracking potential customers. Data can be especially useful when trying to determine Recency, Frequency and Monetary values for marketing analysis.

Customer data is vital to a B2B company’s marketing tactics. However, it’s only really helpful if the data is “clean” ─ it undergoes regular maintenance to help you minimize the risk of marketing to unprofitable prospects. Good list hygiene starts with defining your databases, both current customers and prospects. A common mistake is for marketers to group these two types together. However, they should be treated differently for optimal results.

Once databases are properly defined, you should concentrate on establishing targets within each database. This is done by sorting them by specific criteria that will show you what you need to know for more effective marketing purposes.

If you do not know where your databases are, you must find them and download them into a Microsoft Excel file. Then you must maintain control of them and keep them somewhere where only you or your designees can access and manage the information.

RFM:  The key to analysis

RFM stands for Recency, Frequency, and Monetary values, which are elements in customer purchase behavior that predict whether a person will respond to a promotion. Many methods exist for calculating RFM, but sorting in Excel is among the best tools for producing a comprehensive picture. For Recency, your customer file is sorted by the most recent purchase contact with a customer. This assumes that the “purchase date” is a field in your database. As a matter of fact, the following fields would be required and preferred for your customer file:

• # of Transactions
• Amount of Transaction
• Item Purchased
• Date Purchased
• Profile the Company (demographics)
• Name, Address, City, State, ZIP, Phone, e-mail, fax

For your Recency analysis, sort from “Most Recent” to “Least Recent” on the purchase date field. Then, divide your sorted list into five equal parts (20%), known as quintiles. Assign the top 20% a value of “5,” the next 20% “4” and so on. If you were to do a promotion to your entire file, the best response would emerge from your “5s” because they are the most recent. People who have bought from you recently are more likely to respond to an offer than someone who had made a purchase in the past.

Frequency analysis is done the same way, but sorted on the number of times a customer has purchased from you. Finally, do the same with Monetary values. You will now have all of your customers with three new values: quintile scores in RFM, which can be added up into a total value, and then sorted from highest to lowest, giving you a profile of your best to worst customers. This is extremely valuable information in understanding the lifetime value of a customer, as well as behavior patterns to structure a strategy of contact.

Advance preparation completed before you build your customer file is the most important work you will do. You cannot underestimate the importance of planning the database. The cleanliness and standardization of data in advance will only help you make more informed judgment calls based on insights from what the data says.

The RFM approach can help you improve your marketing efforts by targeting the best potential customers for what you have to offer. The key to understanding your customers is having one collective standardized database that’s continually updated. Every time you touch your data, you’re evaluating your business relationships and your market, and you’ll gain a new perspective that can lead to additional strategies. Business is always changing, and this approach ultimately gives you real-time knowledge to target the right customers and increase your marketing effectiveness while keeping costs under control.

For more information, contact Jim Nowakowski at (847) 358-8558 or visit Accountability Information Management, Inc. at www.a-i-m.com.

Why Everyone Has a Story to Tell and How You Should Share It

It is amazing how much information people are sharing on Internet sites such as Facebook and Twitter. Whatever you may think about the quality of this information (Are you really interested in knowing that a friend of a friend is stuck in traffic or what your neighbor is fixing for dinner?), the social media have unwittingly reinforced a long-held underpinning of Publicity 101: Just get the information out there.

In an age dominated by Twitter/Facebook/blog communications, when everyone has the chance to blast information to the world, it’s surprising that many companies still choose to stay silent. Is that because companies don’t think they have any news to share, or for whatever reason, they just don’t share their news?

If you do not yet have a formal process for sharing information about your company, you may wonder how to start and what type of information to send. All companies in this market have news that would interest architects, interior designers and showroom consultants. The trick is to uncover what’s newsworthy — and thus worthy of publicizing — and figure out how to let your own little corner of the world know about it.

What Interests You May Interest Others

News often follows the adage: One man’s garbage is another man’s treasure. What you think is interesting or newsworthy may not be what someone else cares to read, and vice versa. One of the newswire Web sites, which serves as a fee-based distribution hub for press releases, keeps an ongoing tally of its most frequently viewed releases. A recent top five list included:

1) A foodservice chain’s free dessert offer

2) Management changes at a financial services company

3) The death of a media personality

4) A claim that a product deemed by the FDA to be harmful is, in fact, safe

5) Notice of a corporate acquisition

#1 and #3 are general interest stories that are intended to attract a wide audience. For #1, who doesn’t love dessert, and when it’s free…well, enough said. #3, on the other hand, is the type of story that touches people on a personal level, or perhaps just makes people curious to find out what happened to someone they’ve heard about.

Although your company may have news that falls in line with #1 and/or #3, it’s likely that developments in your company more closely resemble the corporate and product news represented by news items #2, #4 and #5. Most companies in the kitchen and bath market do not have mouth-watering giveaways or nationally known personalities to publicize. But that is perfectly OK. As the newswire list demonstrates, many people highly value news that could be considered mundane or routine in comparison to other announcements.

The good, old-fashioned press release is as valuable as ever in sharing your news, and you shouldn’t be shy about using this vehicle to inform your focus audience about your products, services or notable changes. Most publications seek press releases to provide the information their editors need in various forms and formats. And the press release can work in conjunction with online services. In fact, the rise in blogs and other content delivery sites has created a need for more information, and media providers are relying more heavily on press releases to help fill the void.

Many magazines and newspapers, for example, feed small headlines daily through Twitter (Twitter’s 140-character content limit keeps submissions, or what’s known in the Twitter world as a “tweet,” short by design). Each tweet typically includes a URL link that brings the reader to a blog or Web site to see more details. Among B2B publications that use Twitter,  tweets often announce new products, which is just the sort of information contained in a typical press release.

Accountability Information Management’s sister company, Interline Creative Group, can show you examples of effective press releases and work with you to develop press releases that cover relevant topics. We use time-tested approaches that will maximize their potential of being used by publication editors and writers.

For more information, visit www.interlinegroup.com.