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Drilling Down Newsletter - January 2001
Pre-CRM Testing, RFM in Service Biz

Drilling Down Newsletter - January 2001

In this issue:

#  Best of the Best Customer Retention Links
#  Drilling Down Site: 
    Practice What You Preach
#  New Article: "Pre-CRM" Testing Techniques -
    Determining the Potential for Marketing ROI
#  Questions from fellow Drillers: RF
    Techniques with a service business.

Hi again Folks, Jim Novo here.  
Let's do some Drillin'!

Customer Retention Links
The following are must read articles on measuring and managing customer retention.  Their "free status" on the DM News website expires 30 days after the publication date listed.  If you don't read them by then, you'll have to pay $25 to read them in the DM News archives.  Note: I provide links to many more articles like these as they become available on the Drilling Down site.  If you don't want to miss any of them, you might want to check this page weekly for updates to the article links:


Note to web site visitors: These links may have expired by the time you read this.  You can get these " must read" links e-mailed to you each month 2 weeks before they expire by subscribing to the newsletter.

* Finding Your Direct Marketing Retail Mantra
January 18, 2001   DM News
It's not just me saying this stuff, folks.  Listen to another person talking about how tracking customer behavior with RFM will transform your business.  Your demographic info means so much more when you understand the behavior associated with it.

* Marketing Isn't Always Sell, Sell, Sell
January 11, 2001   DM News
Nice piece on topics you don't see much - "Kiss" programs with best customers and "Go Away" programs with worst customers.   These ideas may seem strange to newbies in database marketing land; they're fairly advanced programs, but extremely profitable.    Read the article to find out "What"; read my book to find out "How To."

Dot-Coms Need to Sell, Not Brand
January 11, 2001   DM News
This one's going to give the branding guys fits, but face it - pure dotcoms are in the direct marketing business, whether they know it or not.  Time to fess up, kids.

The Basics of a List Recommendation
January 9, 2001   DM News
A good intro to list selection, for those of you thinking about renting an online (or offline) list.  What you ask for really matters - for best response, always ask for a Recency select.

Drilling Down Site - Practice What You Preach

Fortunately, the book has proven quite popular in the first 3 months and I could afford a "real" site design.  Check it out at:


Now that the site looks a little more professional, don't be afraid to recommend it to friends or link to any of the content!

If you use a slow connection or an alternative browser, you will find the same content in the "old format" at:


The old format page sizes have been reduced
(in KB) even further to facilitate very past downloads.

The content on both sites will be identical.  Each page on the new site links to the same page at the alternative site.  If you can afford it, this is a highly suggested way to "keep everybody happy."  As much as 40% of my traffic comes from overseas, where connections and browsers may not be able to handle Style Sheets, Graphical Navigation, and so forth.


New Article: "Pre-CRM" Testing Techniques -
Determining the Potential for Marketing ROI

I've received some positive interest on the topic of "Pre-CRM Testing" - the idea there are ways to determine if your customer base will respond _profitably_ to CRM initiatives.  If you do some testing, you can prove out the potential ROI case before you drop the big CRM bucks.  This applies in particular to Analytical CRM, the piece that profiles customers and generates campaigns,
professing to increase customer value.

This article provides a little background on CRM
analytics in general, and provides two simple tests you can do to evaluate the potential of increasing customer value using these packages.  See:


Requesting Reader Feedback

Newsletter readers:  Are you interested
in more coverage of pre-CRM testing in this
newsletter?  The idea is you can determine
in advance the magnitude of potential
"customer side" ROI in a CRM installation.

If you can calculate the potential lift to LifeTime
Value of installing CRM, you can use this data
to help justify CRM software costs.  Drop
me an e-mail  with your opinions or specific
questions on pre-CRM testing using the e-mail address below (click on link):

Pre-CRM Testing

Also, for those already knee-deep into CRM,
remember I'll be speaking at the Thunder
Lizard conference in Monterey, CA March
12-14, 2001.  The topic of the piece
is "CRM Rules You Can Use"

Questions from Fellow Drillers

We're skipping right to the Driller Questions this month because both this question and my answer are quite lengthy.  Don't want to overload you with too much info.

It's an outstanding question and between the question and the answer, covers a lot of ground I was going to cover in this month's newsletter anyway.

This Driller knows his stuff, using advanced database marketing techniques on the customer acquisition side.  But in a business where the bill gets paid every month and it's about the same (electric utility), how do you get to the R and F (Recency and Frequency) to model potential customer defections?  Great question, and a pithy answer.

Remember, you can use RF profiling on _any_ behavior not just payment related activity!  If you don't know what we're talking about with this RF stuff, see:


Q.  Jim,

Ordered and read your book AFTER reading EVERY page in your website.

Your newsletter is outstanding and you seem to be one of the few with real life experience in database marketing with the skills to simply explain with pragmatic examples of how RFM and LTV should be used.

We are a technology based Call Center company with over 70 clients - we do a lot of the "operational" CRM stuff you refer to - Siebel, Onyx, Kana, Webline, ........, as well as a lot of custom developed SFA solutions and data warehousing solutions we developed -  mostly the premise of investing to collect enough information to do the 360 view of the customer across communication medium (email, chat, phone, fax) and reason for calling (campaign, sales, orders, info, customer service....)

We have a good mix of B-B as well as B-C. We
already do a lot of the demographic modeling for list acquisition (SIC codes, size, number of computers, Geo ....). One thing I noticed is that we do a lot of lead generation based upon list acquisitions along with inbound marketing campaigns that seem to address one shot Sales, not recurring sales.

For example, we sell and service de-regulated energy for one client - this is sell once, then service. Since they pay every month for the service, how do you suggest the RFM model be used for service based sales since there is not really an R or an F??? We still have acquisition and retention problems, but we mainly focus on operational efficiency through technology, not strategic use of CRM data. I would really like to be able to add real value based upon the data collected.

I know this is not your forte, but I was just curious if you had any opinions using CRM data in an RFM model when the product is basically recurring service.

A:  Thanks for the compliments on the site, book, and newsletter.  I hope they will be helpful to you as we try to get a firmer grasp on these subjects this year!

It's a little tough to provide you a direct answer to such a broad question without more details, but in general, R and F are highly predictive of _any_ action-oriented behavior.  In a "billing / service" business like a utility, you sometimes have to hunt a bit harder for the action you want to model as predictive.

For example, at Home Shopping Network, use
of the automated ordering process (touch-tone interface to the ordering system circa 1990) was very highly correlated with Future Intent to Purchase.  Not exactly a traditional RF action, to be sure, but a falling RF score on use of the interface was very highly predictive of a defecting customer.

In interviewing customers with falling RF scores
on the interface, we found what this really meant to them was "the thrill is gone," meaning they felt no urgency to order anymore so used the interface less - the "hard" data point representing the "soft" feelings of the customer expressed through their behavior.  In other words, the beginning of the end of the LifeCycle.

How'd we figure that out?  It took a long time,
and we used some advanced modeling
techniques to locate the correlation.  Once
found, it became part of the RF modeling
process and put into an "RF Grid."

(For those who haven't read the book, an
RF Grid is the most advanced (and highest
ROI) implementation of the Drilling Down
method.  It combines the Recency-Frequency
behavioral measurement with customer
LifeCycle information generated by RF
Scores over time).

If you have a website or telephone "self service" interface, falling use of it might mean customers are getting ready to defect, or it might mean they are satisfied and are going to stay long term.  There's no way to tell in advance, but the customer behavior will "speak" and tell you which it is.

Here's what you might be able to do:

1.  Make sure you understand all the data points available to you

2.  Isolate "best customers" - those who signed up and stayed signed up for the longest time, with the least cost (variable cost to you - installation, marketing etc, _not_ in terms of total calls to the center).

3.  Run RF profiles over time (LifeCycle) on
each piece of "action-oriented" data  available to you, and determine which provides the highest correlation to best customer behavior.

For example, high RF of calls to the center
might be highly positively linked (good service
leads to better customer) or might be highly
negatively linked (billing problems create repeated calls = mad customers who disconnect).

A falling RF score might be good - less recent
and frequent calls = higher satisfaction - or may be bad - less recent and frequent calls = customer "apathy" or indicates they are looking for an alternative service.

In service businesses, you generally look for
sharp changes in behavior - a drop of 30% in
usage, and increase of 50% in calls.  These are
good targets for automation since they're quite clear cut.

Also, as you probably know, bundling, if
available, usually results in longer term customers.  The reverse is also true - customers who reject bundling tend to be short term customers.

And finally, source of customer is absolutely
critical in this kind of business, especially since
your "markets" may be geographically
constrained.  Since you are an electronically
driven, data-dependent acquisition shop (SIC
codes, size, number of computers, Geo ....)
you have the luxury of looking at RF by customer acquisition source.  Good customer retention _starts_ with proper customer acquisition, and it should be relatively easy to look at LTV by customer source (even without using any RF, at a simple level - a "quick take").

Here's what I mean.  Pick a start date, say
one year ago, and take a quick look at your
highest value customers (gross billings?)
over this time and see where (what campaign,
data element, etc) they came from.  Then look
at lowest value (disconnected?) customers
from the same start point, and see where
_they_ came from.  If there are differences,
you're on your way to finding the answer you're looking for.  In addition, once you determine their _is_ a difference, survey a subset of each group and try to find the commonality in the groups and differences between the groups.  This links the data to the emotions and provides a backdrop for improving acquisition technique.

Don't try to do this starting from a "micro"
level and looking up.  Start with macro ideas
(geography?) then "drill down" (couldn't resist)
a layer, then another.  When you get down to
the level where their appear to be no sizable
differences between groups anymore, you're
done.  Going any lower is just "noise."

Hope this was helpful!  If it was, and you think
the book, site and newsletter are valuable,
please consider sending me your "review"
of these tools for publication on the Drilling
Down website.

Good Luck!


NOTE:  Got a question on database or
high ROI customer marketing?  What are
you waiting for?  Ask me!

That's it for this month's edition of the
Drilling Down newsletter.  If you like the
newsletter, please forward it to a friend;
the subscription is free!  Subscription
instructions are at the top and bottom
of the newsletter.

Any comments on the newsletter (it's too
long, too short, topic suggestions, etc.)
please send them right along to me,
along with any other questions on
customer Valuation, Retention, Loyalty,
and Defection, at this address.

'Til next time, keep Drilling Down!

Jim Novo

Copyright 2001, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete attribution, including live web site link and/or e-mail link.  Please also notify me as to when and where the material will appear.


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