Adding the "P" (Product Category) to RFM (1,079 words)

There are few catalogers who don't know what RFM stands for. It is the technique of capturing customer purchase history by the three most important variables:

R = Recency -- date of customer's last purchase; F = Frequency of purchase -- number of times a customer bought; M = Monetary -- lifetime dollars spent on a catalog by a customer.

RFM is the catalog industry standard for segmenting a catalog's customer or buyer file. RFM is not applicable to new-customer acquisition—only customer list marketing.

A term that is less familiar is RFMP, in which the "P" stands for Product Category. While simple RFM segmentation can ensure you pass your break-even point, adding this fourth variable into your efforts can help you greatly surpass it.

Using Straight RFM

As a catalog grows its customer list to a point where it can be segmented and divided into cells, it can apply simple segmentation techniques to customers to be mailed. For example, rather than thinking "a customer is a customer is a customer," a cataloger can use RFM to answer such questions as:

• To whom should the next campaign be mailed?

• How often should the customer list be mailed?

• Which segments should receive a second or a third catalog mailing during a season?

• Where do you draw the line in determining whether or not to mail?

Determining the optimum number of mailings to your customers is not always easy, even with RFM. Generally, catalogers tend to under-mail their customer list. But there is a right number of catalogs that customers will tolerate before complaining. Victoria's Secret mails its good customers weekly—sometimes more often—and customers complain that they get too many catalogs. There are several creative options in changing the look of your catalog when considering re-mailing within a season.