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EXERCISE

RFM Analysis for betterment of Database Marketing Campaigns

1. A Credit Card firm conducted a DB marketing campaign, after tying up with number of suppliers for
various products & services for discounted prices, if purchased through the Credit Cards issued by
the firm. A printed mailer with information on these special offers and call for action was sent to the
entire database of 100000 “active” card holders, at a cost of Rs. 22 lakhs. This campaign produced
the following results:
- Response Rate: 2%
- Total gain from all the orders received (Purchases – All servicing costs): Rs. 15 Lacs.

2. About 2 months later, the firm is about to launch another similar campaign, using the same
database as used for the earlier campaign (new card holders in the interim period are not
considered). However, the firm wishes to generate a proper target list from the database of 100000
customers, using RFM analysis, to make the DB marketing “profitable” and save on the cost of the
campaign.

3. The firm carries out following steps:


a) Ascending R value sort of the database, after entering the R, F, and M values for each
customer.
b) Divide the R-Sort database into Quintiles and assign R score of 1 for all records in 1 st quintile, 2
for all records in 2nd quintile …… 5 for all records in 5th quintile.
c) Sort each of the above quintiles on descending order of F, further divide each into quintiles,
assigning F scores 1…5 for the records.
d) Further sort each R and F sorted quintile on descending order of M, divide into quintiles and
assign M scores of 1…5 for the records.
The end result from the above: 125 parts of the database or RFM cells with RFM score going from
111…115, 121…125 and so on, till 551…555.

4. The firm now studies the response to the previous campaign of the specific customer in each RFM
cell and records the response rate for each RFM cell, in the form of a table (125 records) and sorts
this table in descending order of response rate.

RFM Cell RR%


xxx 14
xxx 12.6
… …
… …
xxx 10.8
xxx 10.4
… …
… …

5. In the above table, it is observed that:


a) RR% falls below 5% from the 31st record
b) RR% falls below 4% from the 55th record.
c) RR% falls below 3% from the 70th record.
d) RR% falls below 2% from the 96th record.

Based on the above analysis, what would be your recommendations for the new campaign, in terms of
what Target List of Customers must be selected and the number of mailers to be sent? How did you
reach these conclusions? What is the % saving in the cost for the new campaign?