Expert: Jim Novo - 12/17/2006

Question
Hi Jim
I have an online store and I do a lot of mailing. I was reading the RFM model and i found it very interesting. I wonder myself.....If my mailing costs are fixed no matter if I send one or thousands of mails, ¿How can the RFM approach can be useful to my online store? Obviously a physical retailer has to control the catalogue spending and a great way would be the RFM approach....but for e-tailing that would be different right?

Thank you

Answer
It's a bit different, yes, because e-mail is cheaper than a paper catalog.  But there is one issue that is the same: subsidy costs - the cost of giving discounts to people who would have bought anyway at full price.  And there is a new issue with e-mail: reducing future profit by alienating customers.  You can use RFM or even a simple Recency model to help you reduce the costs of both issues.

It's all covered pretty well here:

http://www.jimnovo.com/newsletter-4-2004.htm#Q1

Jim