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sending communications to those who are unlikely to respond. The principles are described in detail in my book Strategic Database Marketing.1 As an example of the way RFM works, look at Figure 6-1, which diagrams an actual mailing to 500,000 customers coded by RFM. The company did not break even on those customers in cells below the 0 line; in other words, the pro t from sales to them was less than the cost of mailing to them. This type of analysis is done to a small test sample coded by RFM. From the results of that small test sample, you can accurately predict the behavior of 2 million customers coded in the same way. The result was that this rm mailed only to those cells that were pro table. It doubled its response rate. This is the power of RFM. It still is a vital tool in direct marketing using regular mail. The Web has changed the situation, however. Since emails are so inexpensive, there is little point in restricting offers to existing customers in order to save money. You email to everyone. RFM, however, is still a useful way to categorize customers, even email customers.
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The Air Miles reward program is Canada s largest coalition loyalty program. Over 60 percent of Canadian households have enrolled in the program for free. Under this program, members earn Air Miles reward miles by buying goods and services from a variety of merchants. The Air Miles for Business program allows members to earn reward miles on their business purchases as well as their personal purchases as consumers. In the spring, the Loyalty Group, the creators and managers of the program, offered bonus reward miles to Canadian farmers in a direct-mail campaign urging them to buy products from such merchants as United Grain Growers, John Deere Credit, AgLine, Shell, and Goodyear.
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1 RFM software is available free for downloading at www.dbmarketing.com. During the last 5 years, an average of three companies per week have downloaded this software. It works wonderfully for direct mail. In the standard RFM coding, there are 125 cells, from 555 (the most responsive) to 111 (the least responsive).
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500 400 300 200 100 0 555
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Maria Wallin, marketing manager at the Loyalty Group, arranged for a direct-mail piece to be sent to 50,000 western Canadian farmers who had been active in the program in the 14 months prior to the campaign. In addition, mass media ads for the campaign were placed in six farm publications in western Canada. The goal of the campaign was to achieve a direct-mail response rate of 5 percent and to encourage 2 percent of those contacted to make purchases at one more farm merchant than they had used the previous spring. Air Miles for Business turned to OgilvyOne Worldwide in Toronto for strategic and creative development of the mailing piece, and to Symcor Direct Response for the laser and letter shop production. Using the Air Miles member database, they developed 72 different combinations of letter copy and 2952 certi cate sheet combinations, completely driven by past purchase behavior. The offer of bonus reward miles was designed to encourage increased spending during the promotional period. There was an additional incentive for each farmer to visit one merchant whom he or she had not visited the previous spring. A control group of 10,000 western Canadian farmers who were members of the program but did not receive any mailings was set aside. The success of the campaign was measured by the overall response rate, the number of farm merchants used, and the number of reward miles earned by those who received the mailing versus those in the control group who did not. The result was that 12 percent of the mail universe responded to at least one of the offers, more than double the rst objective. In addition, the number of reward miles earned by those who received the mailing was 59 percent higher than the number earned by the control group during the period of the promotion. The same test
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