Your most valuable sales asset is your database. It contains the key to future sales and staff productivity. If you know how to use your database for marketing, you will have increased sales performance with only a little effort and few additional expenses.
The concept behind database marketing is simple. You use past results for each of your customer lists to predict future results. With this prediction, you devote your sales resources (people, direct mail, broadcast fax, etc.) to those segments which have the greatest profit potential. You give the least attention to segments which will most likely produce very few sales. Very simple indeed!
Database marketing is a statistical game. Even your best customer segments will not buy all the time. And your least productive segments will result in some sales. Therefore, you need to continually measure your marketing approaches and test the results. Over time, you will learn what to expect from each of your customer segments for better utilization of resources and improved marketing results.
ARC/400 allows you to do database marketing by using regency, frequency, monetary (RFM) analysis. Regency is when a customer last gave you an order. Frequency is how many orders have been given to you by the customer. Monetary is the dollar amount of the orders.
Regency is used to segment customers into regency bands. For example, band 1 may consist of customers who have placed an order within the previous one year. Band 2 are those who have placed an order in the past two years, but not the previous one year. Band 3 are those who have placed an order in the past three years, but not in the previous two years. And so on. Usually, there are 5 bands where the last band contains customers who have not done business recent enough to be in any other band. ARC/400 implements an extra band for all prospects who have never done business with you.
Frequency is the number of orders placed. This is a numerical value.
Monetary is the total amount of the orders placed. This is a total dollar value.
ARC/400 will automatically track RFM for each of your customers. You can then use any of the following to create call lists for your sales people, letters/labels for your direct mail, broadcast fax, and file downloads. You can use these for management reporting and other statistical analysis.
- Regency Band - Current
- Regency Band - as of Beginning of the Month
- Regency Band - as of Beginning of the Quarter
- Regency Band - as of Beginning of the Year
- Regency Band - as of One Year Ago
- Frequency - Lifetime
- Frequency - Previous 12 Months
- Monetary - Lifetime
- Monetary - Previous 12 Months
- Monetary - Most Recent Order
- Frequency - Lifetime Previews
- Frequency - Previous 12 Month Previews
With this information, you can do many comparisons and analyses. For example, you expect your best customers to be in regency band one (who have all done business within the past one year). On a quarter by quarter basis, you can determine how many of these "best customers" are reverting to band two. You can also determine how many customers in other bands (including the prospect band) are moving into band one. Your job is to determine why customers might be leaving band one (no longer doing business) and what is making others (who have not been a "best" customer) join band one.
There are a number of RFM reports which are standard with ARC/400.
- Customer RFM Profile
For each regency band, the following summary statistics are displayed: number of customers, average lifetime frequency, average 12 month frequency, average lifetime monetary, average 12 month monetary, and average order value.
- Daily RFM Sales Report
For each regency band, display the number of customers sold, total number of orders, total dollar amount, average dollars per order, number of units, and average dollars per unit.
- Daily Regency Reconciliation Report
For each regency band, the number of customers in each are displayed. Also, the number in each band that has moved into Band 1 (new "best" customers) and how many have moved from the previous band (moving into a lower band through non-activity).
- Weekly RFM Trend Analysis (52 week running values)
For each of the previous 52 weeks in the past, the report displays the number of customers sold, number of orders, sales volume, average sales volume, number of units sold, average dollars per unit.
- 12 Month Monetary Historical RFM as of a specified date
As of a date in the past, customers are placed into 5 categories (quintiles) based upon the 12 Month Monetary as of that date. This is compared to current values: percent in regency band 1, average 12 month monetary, and average 12 month frequency. This information will tell you how customers are performing, as a group, Over time.
- Lifetime Monetary Historical RFM as of a specified date
This report is the same as the 12 Month version, except that the quintiles are based upon lifetime monetary instead of the 12 month monetary.
- 12 Month Frequency Historical RFM as of a specified date
- Lifetime Frequency Historical RFM as of a specified date
These reports are merely meant to get one in touch with who you customers are. If you know your customers, then you have a leg up on your competition in terms of being able to target your marketing efforts for the best results.
For more information, see Libey on Regency, Frequency and Monetary Value by Donald R. Libey. Published by Libey Publishing Incorporated, Washington, DC 1994. Orders are taken at 1-800-955-5493.