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The Merits of a Gold The Merits of a Gold ProgramProgram

Principles to build Gold Principles to build Gold Card relationshipsCard relationships

High StandardsHigh Standards Generous BenefitsGenerous Benefits A wealth of informationA wealth of information

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The Merits of a Gold The Merits of a Gold ProgramProgram :h :how to set up a gold ow to set up a gold

card systemcard system Build a databaseBuild a database Code for RFM : Code everyone by RecCode for RFM : Code everyone by Rec

ency, Frequency, Monetary codesency, Frequency, Monetary codes Create a set of simple standardsCreate a set of simple standards Determine some valuable benefitsDetermine some valuable benefits Let your customers know about the pLet your customers know about the p

rogramrogram Don't sell yourself shortDon't sell yourself short

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Keeping Bank Customers Keeping Bank Customers by Database Marketing by Database Marketing attributes for ideal customer marketing attributes for ideal customer marketing

databasedatabase Loyalty Customers are rewarded for Loyalty Customers are rewarded for

staying with you -- and they do. staying with you -- and they do. Increased Sales Increased Sales Referrals Referrals Equity Equity Focus on Relationship and Service Focus on Relationship and Service

rather than price rather than price

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Keeping Bank Customers by DKeeping Bank Customers by Database Marketingatabase Marketing

MVP (MVP ( 累積點數累積點數 )program of WS)program of WSFS FS

Level of average deposit balancesLevel of average deposit balances Balance increases during the Balance increases during the

quarterquarter New loans and mortgages settled New loans and mortgages settled

during the quarterduring the quarter New customer referrals New customer referrals four classes: Non qualifiers, and four classes: Non qualifiers, and

qualifiers in Tier 1, Tier 2 and Tier 3 qualifiers in Tier 1, Tier 2 and Tier 3

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Golden HandcuffsGolden Handcuffs

MVP points accumulated quarter MVP points accumulated quarter after quarterafter quarter

could be redeemed for "Something could be redeemed for "Something Extra" awardsExtra" awards

"Something Extra" points were "Something Extra" points were designed as "golden handcuffs" designed as "golden handcuffs"

golden handcuffs : there was a higher golden handcuffs : there was a higher and higher cost to defection from the and higher cost to defection from the bank bank

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How Customers were How Customers were Segmented Segmented

The 15,000 customers originally qualifThe 15,000 customers originally qualifying for the program (Tiers 1, 2, and 3) ying for the program (Tiers 1, 2, and 3) represented only 30% of the bank's cusrepresented only 30% of the bank's customer base of 50,000. tomer base of 50,000.

These 30% held 94% of the bank's total These 30% held 94% of the bank's total deposit balances. deposit balances.

The cost =$9.30 per qualified customer The cost =$9.30 per qualified customer per year =( $60,000 paid to Emanacom,per year =( $60,000 paid to Emanacom,+ $80,000 in award liabilities)/15000 + $80,000 in award liabilities)/15000

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Benefits of the ProgramBenefits of the Program

Increased Deposits: MVP participants Increased Deposits: MVP participants increased by $21 million ($19 million drop last increased by $21 million ($19 million drop last year)year)

Increased Qualifiers :In the first six months, Increased Qualifiers :In the first six months, 3,363 non-qualifiers raised their balances by 3,363 non-qualifiers raised their balances by $15.2 million (an average of $4,519) and $15.2 million (an average of $4,519) and became qualified became qualified

Reduced Price Sensitivity Reduced Price Sensitivity Cross Selling : MVP qualifying customers took Cross Selling : MVP qualifying customers took

out 624 new loans totaling $12.5 million and out 624 new loans totaling $12.5 million and enrolled in 892 new banking services enrolled in 892 new banking services

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What the Customer SeesWhat the Customer Sees

Personalized Statement similar to the Personalized Statement similar to the frequent flyer statements provided by frequent flyer statements provided by airlines. This details the points earned airlines. This details the points earned in the current quarter, and their in the current quarter, and their accumulated "Something Extra" points.accumulated "Something Extra" points.

Award CertificatesAward Certificates Referral FormsReferral Forms A catalog of "Something Extra" A catalog of "Something Extra"

rewards.rewards.

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Product HolesProduct Holes

"product hole" : absence or inadequate "product hole" : absence or inadequate utilization of a bank service expected of utilization of a bank service expected of members with corresponding balances members with corresponding balances

After the MVP statement was generated, After the MVP statement was generated, WSFS used Insight to generate WSFS used Insight to generate personalized letters to MVP customers personalized letters to MVP customers with a "product hole" with a "product hole"

For example, Tier 3 customers were For example, Tier 3 customers were qualified for the premier packaged qualified for the premier packaged checking program checking program

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Reactivating Lost Reactivating Lost Cellular Phone Cellular Phone

Customers (Art103)Customers (Art103) BellSouth Mobility : adding over 2,500 customers a BellSouth Mobility : adding over 2,500 customers a dayday

Losing over 500 customers per day Losing over 500 customers per day Active customers average only $60 per month in revActive customers average only $60 per month in rev

enue enue It costs an average of $350 to add a customerIt costs an average of $350 to add a customer Goal: win back 10% of their lost subscribersGoal: win back 10% of their lost subscribers They wanted to know why they left, whether they wThey wanted to know why they left, whether they w

ould come back, and what it would take to get them ould come back, and what it would take to get them to do so. to do so.

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Why BellSouth Mobility’s Why BellSouth Mobility’s Customers LeftCustomers Left

Cellular industry churn is about 18% of Cellular industry churn is about 18% of the customer base per year the customer base per year

12%  --  No longer needed the service12%  --  No longer needed the service 8%  --  Company no longer pays the bill8%  --  Company no longer pays the bill 24%  --  Moved out of the coverage area24%  --  Moved out of the coverage area 34%  --  34%  --  Switched to the competitionSwitched to the competition 2%  --  Other reasons2%  --  Other reasons

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Why Customers Switched Why Customers Switched to the Competitionto the Competition

BellSouth did something that upset BellSouth did something that upset me. me.

BellSouth wouldn't issue a credit BellSouth wouldn't issue a credit ($0.50) for a dropped call ($0.50) for a dropped call

BellSouth gave free phones to new BellSouth gave free phones to new subscribers, but not to me subscribers, but not to me

BellSouth wouldn't give me the BellSouth wouldn't give me the current (free air) promotion current (free air) promotion

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Reactivation Strategy (Reactivation Strategy ( 不成不成功）功）

give the fifty-cent credit for all dropped calls give the fifty-cent credit for all dropped calls Next, they tried a free phone or free airtime Next, they tried a free phone or free airtime

direct mail offer to 3,500 customers direct mail offer to 3,500 customers 3% response rate 3% response rate ，， 1% reconnection1% reconnection，， $800 $800

per reconnected customer per reconnected customer Why?Why?

I'm under contract with the other guys I'm under contract with the other guys I moved and didn't see the offer I moved and didn't see the offer I lost the card they sent me I lost the card they sent me

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Back to the drawing board (Back to the drawing board ( 成成功的新規則功的新規則 ))

only mail to customers who left 11 months only mail to customers who left 11 months before before 被綁約已經快到期被綁約已經快到期

8% response rate and a 3% connect rate 8% response rate and a 3% connect rate telephone call increased this to a 10% telephone call increased this to a 10% The cost per customer dropped to $325 eaThe cost per customer dropped to $325 ea

ch ch The reconnect rates have stayed good. TheThe reconnect rates have stayed good. The

y are expanding the system to their other y are expanding the system to their other 27 markets 27 markets

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ConclusionConclusion Getting customers to come back Getting customers to come back

begins with understanding the begins with understanding the thinking of the customers thinking of the customers

An active marketing database. An active marketing database. Surveys and Focus Groups.Surveys and Focus Groups. Timing of the offer. making the offer Timing of the offer. making the offer

in the 11th monthin the 11th month Testing on a small scaleTesting on a small scale Putting themselves in the customer's Putting themselves in the customer's

shoes.shoes.

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ConclusionConclusion Drawing intelligent conclusions based on Drawing intelligent conclusions based on

financial analysis. BellSouth didn't do that financial analysis. BellSouth didn't do that at all. Each effort was carefully studied and at all. Each effort was carefully studied and measured. measured.

From what they learned, they tried to get From what they learned, they tried to get inside the heads of the lapsed subscribers inside the heads of the lapsed subscribers so as to figure out what they were thinking. so as to figure out what they were thinking.

The combination of the right offer, at the The combination of the right offer, at the right time, based on careful testing, is right time, based on careful testing, is certainly the hallmark of database certainly the hallmark of database marketing at its best. marketing at its best.

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Making Your Database Pay OffMaking Your Database Pay OffUsing Recency Frequency and Using Recency Frequency and Monetary Analysis (Art104a)Monetary Analysis (Art104a)

The principal obstacle to effective databThe principal obstacle to effective database marketing is the development of proase marketing is the development of profitable strategies for use of the database. fitable strategies for use of the database.

relatively easy to construct a workable relatively easy to construct a workable marketing database. marketing database.

These strategies you will have to work oThese strategies you will have to work out yourself. ut yourself.

Recency, Frequency, Monetary (RFM) ARecency, Frequency, Monetary (RFM) Analysis nalysis ：： The oldest and one of the besThe oldest and one of the best techniquest techniques：：

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Why use RFM analysis? Why use RFM analysis? All the components of RFM are All the components of RFM are

behavioral behavioral Readily available to predict Readily available to predict

customer behavior. customer behavior. Predicting behavior based on Predicting behavior based on

recent behavior is a much more recent behavior is a much more accurate and powerful method accurate and powerful method than predicting behavior based than predicting behavior based on any other known factoron any other known factor

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How to code your database How to code your database (Information)(Information)

To do RFM analysis, all customer records must To do RFM analysis, all customer records must contain certain purchase history data, and be contain certain purchase history data, and be properly coded properly coded

a) a) the the most recent datemost recent date that the customer has that the customer has requested a change in his service, purchased a requested a change in his service, purchased a discretionary item, etc.discretionary item, etc.

b) b) a counter for the a counter for the frequencyfrequency - the number of - the number of times he has made a purchase, or continued his times he has made a purchase, or continued his service with you. For a telephone company, for service with you. For a telephone company, for example, it might be the number of months of example, it might be the number of months of continuous service; for a retail store, it would continuous service; for a retail store, it would be the total number of store visits. be the total number of store visits. This counter This counter is incremented by one every time a purchase is is incremented by one every time a purchase is mademade..

c) c) a counter for the a counter for the monetary amountmonetary amount - the - the total dollar amount the customer has total dollar amount the customer has purchased from you since the beginning of purchased from you since the beginning of time. time.

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Constructing a Recency CodConstructing a Recency Codee

sort all the records in your database by sort all the records in your database by most recent date, with the most recent most recent date, with the most recent at the top at the top

you divide the database into five exactlyou divide the database into five exactly equal parts (quintiles) y equal parts (quintiles)

Assign Assign Recency codeRecency code 5,4,3,2,1 to each 5,4,3,2,1 to each partsparts

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Figure 01 Building Recency QuFigure 01 Building Recency Quintiles intiles

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Response Rates By RecencyResponse Rates By Recencya universal phenomenaa universal phenomena

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Constructing a Constructing a Frequency CodeFrequency Code

constructing a frequency code in exactly constructing a frequency code in exactly the same way the same way

Put the frequency code in your customePut the frequency code in your customer records right next to the recency code. r records right next to the recency code.

you have created a two digit code in everyou have created a two digit code in every customer record, which varies from 55 y customer record, which varies from 55 (most recent and most frequent) down t(most recent and most frequent) down to 11 (most ancient and least frequent). Eo 11 (most ancient and least frequent). Each group will have exactly the same nuach group will have exactly the same number of records. mber of records.

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Figure 03 Response Rates by FrFigure 03 Response Rates by Frequencyequency

Recency Is More Powerful Than FrequencyRecency Is More Powerful Than Frequency

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Constructing a Monetary Constructing a Monetary CodeCode

Construction of a monetary code is exactly tConstruction of a monetary code is exactly the same as the previous twohe same as the previous two

Put your monetary codes right next to the frPut your monetary codes right next to the frequency codes equency codes

three digit code in their customer record, frothree digit code in their customer record, from 555 down to 111 m 555 down to 111

There are 125 RFM Cells in all There are 125 RFM Cells in all recalculate and revise your RFM cell codes erecalculate and revise your RFM cell codes e

very time that you update your database -- tyvery time that you update your database -- typically once a month pically once a month

在資料庫中保留客戶在資料庫中保留客戶 RFM CodeRFM Code的歷史資料，以的歷史資料，以利分析其變化及演變利分析其變化及演變

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Constructing a Monetary Constructing a Monetary CodeCode

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An ExampleAn Example

Test on 40,000 Customers by Nth (Test on 40,000 Customers by Nth ( 每隔每隔NN 個人抽樣一次個人抽樣一次 ))

樣本中樣本中 125125 個個 RFM Cells RFM Cells 出現的機率完全出現的機率完全相同相同

促銷成本：每人促銷成本：每人 120120 元元 銷售淨利：每人銷售淨利：每人 3535 元元 郵寄成本：每份郵寄成本：每份 0.620.62 元元

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測測試試結結果果

Cell Position RFM Cell Number Mailed Number Responses Response Rate

A B C D E

1 555 320 31 9.69%

2 554 320 30 9.38%

3 553 320 28 8.75%

4 552 320 20 6.25%

5 551 320 19 5.94%

6 545 320 26 8.13%

7 544 320 20 6.25%

8 543 320 18 5.63%

9 542 320 16 5.00%

10 541 320 12 3.75%

11 535 320 14 4.38%

12 534 320 10 3.13%

13 533 320 10 3.13%

14 532 320 9 2.81%

15 531 320 7 2.19%

16 525 320 13 4.06%

17 524 320 10 3.13%

18 523 320 8 2.50%

19 522 320 8 2.50%

20 521 320 7 2.19%

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測試結果財務分析測試結果財務分析

Number Mailed

Number Cost/Each Cost/Revenue

40,000 $0.62 $24,800

Number Responded

711 $35.00 $24,885

         Response Rate 1.78%

         Net Profit from Promotion

$85

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How to determine How to determine profitable RFM Cellsprofitable RFM Cells

Break Even = Mail Cost per piece / Net revenBreak Even = Mail Cost per piece / Net revenue per saleue per sale

Break Even = $0.62 / $35 = 1.77%Break Even = $0.62 / $35 = 1.77% Index of Profitability= (Response Rate/Break Index of Profitability= (Response Rate/Break

Even )*100 -100Even )*100 -100 Ex: (9.69%/1.77%)*100 – 100 = 447Ex: (9.69%/1.77%)*100 – 100 = 447 Index of Profitability with discounted responsIndex of Profitability with discounted respons

e rate= (Response Rate * discount rate /Break e rate= (Response Rate * discount rate /Break Even )*100 -100Even )*100 -100

Ex: (9.69%*0.85/1.77%)*100 – 100 = 365Ex: (9.69%*0.85/1.77%)*100 – 100 = 365

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Figure 5 Response by RFM Cell : Figure 5 Response by RFM Cell : Without DiscountWithout Discount

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Test Rollout SelectedTest Rollout Selected

Mailed 40,000 800,000 211,200

Responded 711 12,104 7,293

Response Rate

1.78% 1.51% 3.45%

Mail Cost $24,800 $496,000 $130,944

Net Sales $24,885 $423,640 $255,255

Net Profit $85 ($72,360) $124,311

Res. Rate > 1.77%

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How Big a Test How Big a Test

One basic rule is that the expected One basic rule is that the expected responses should be 500 or greaterresponses should be 500 or greater

average RFM cell will have 4 average RFM cell will have 4 responders (500/125).responders (500/125).

When the average cell response is When the average cell response is less than four, the law of chance less than four, the law of chance becomes more important in your becomes more important in your results than the law of customer results than the law of customer behaviorbehavior

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Some ExceptionsSome Exceptions

Determining recency can be a problemDetermining recency can be a problem you should use the last time that they chanyou should use the last time that they chan

ged their service, or last time they called cged their service, or last time they called customer service or some other similar datustomer service or some other similar date.e.

The idea is to get the last time that they thThe idea is to get the last time that they thought about your company and did sometought about your company and did something. At such times, your company has behing. At such times, your company has been logged in to their conscious memoryen logged in to their conscious memory

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Cell PersonalityCell Personality

RFM is an ideal way to find out who RFM is an ideal way to find out who should go into your top category.should go into your top category.

Use RFM Cells to create special Use RFM Cells to create special customer segments which will get customer segments which will get special treatment (gold card holders, special treatment (gold card holders, for example)for example)

Each RFM cell has a personality of its Each RFM cell has a personality of its ownown

It is a good idea to track where It is a good idea to track where people were last monthpeople were last month

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Maintaining ContactMaintaining Contact

So RFM does not influence behavior by itsSo RFM does not influence behavior by itself, it just helps us to target behavioral proelf, it just helps us to target behavioral promotion effortsmotion efforts

Customer behavior will be influenced morCustomer behavior will be influenced more by the communications that are generate by the communications that are generated in the process of using RFM analysised in the process of using RFM analysis

We may tell customers in high RFM cells tWe may tell customers in high RFM cells that they have achieved "Gold" statushat they have achieved "Gold" status

we may direct a reactivation mailing at pewe may direct a reactivation mailing at people whose recency quintile is a 1ople whose recency quintile is a 1