THE WHATIS.COM WORD-OF-THE-DAY June 28, 2001 RFM analysis ______________ TODAY'S SPONSOR: Computer Books Direct 3 Computer Books for $1.99 each! Take 3 books for $1.99 each and get one FREE with membership to Computer Books Direct, your source for the most comprehensive books on the topics you want-at the best value! Upgrade and max out your system, build web skills, learn Linux or master Windows 2000. http://ad.doubleclick.net/clk;3032109;5058249;c?http://161.58.99.48/cgi-local/redirect.pl?CUPRBCLCP _____________ QUIZ #8: Database Basics What do you call a database that has billions of table rows? Take this week's quiz about how data is organized and discover the mysterious world of database management. We're betting you know more than you think you do! http://whatis.techtarget.com/definition/0,289893,sid9_gci750695,00.html _____________ TODAY'S WORD: RFM analysis See our definition with hyperlinks at http://whatis.techtarget.com/definition/0,289893,sid9_gci751219,00.html RFM (recency, frequency, monetary) analysis is a marketing technique used to determine quantitatively which customers are the best ones by examining how recently a customer has purchased (recency), how often they purchase (frequency), and how much the customer spends (monetary). RFM analysis is based on the marketing axiom that "80% of your business comes from 20% of your customers". For more than 30 years, direct mailing marketers for non-profit organizations have used an informal RFM analysis to target their mailings to customers most likely to make donations. The reasoning behind RFM was simple: people who donated once were more likely to donate again. With the advent of e-mail marketing campaigns and customer relationship management software, RFM ratings have become an important tool. Using RFM analysis, customers are assigned a ranking number of 1,2,3,4, or 5 (with 5 being highest) for each RFM parameter. The three scores together are referred to as an RFM "cell". The database is sorted to determine which customers were "the best customers" in the past, with a cell ranking of "555" being ideal. Although RFM analysis is a useful tool, it does have its limitations. A company must be careful not to oversolicit customers with the highest rankings. Experts also caution marketers to remember that customers with low cell rankings should not be neglected, but instead should be cultivated to become better customers. 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