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A stochastic RFM model

✍ Scribed by Richard Colombo; Weina Jiang

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
205 KB
Volume
13
Category
Article
ISSN
1094-9968

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✦ Synopsis

R i c h a r d C o l o m b o

W e i n a J i a n g f

A B S T R A C T

A central problem in database marketing is how to choose which customers in the firm's database to target with an offer. This paper presents a simple stochastic RFM model to carry out such a task. By making a few straightforward assumptions about the customers in the database, the stochastic model provides a means of (1) ranking customers in terms of their expected contribution (or lifetime value) and ( 2) deciding how deep to go in the customer file to make the offer. The model provides a more insightful alternative to scoring or segmenting customers than regression or cross-tabulation methods. The approach is demonstrated with an example from the market research industry.

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