Database Scoring using RFV simplified

Database scoring involves selecting the most important customers of your total customer list.
Typically, database scoring is done so that a limited marketing budget can deliver maximum benefits.
A very common technique is using the RFV to score databases.
This is a short story to show how it works:

There was once a very successful businessman who owned a number of sari shops.  He had 3 sons called, Master R, Master F and Master V.  Very bright youngsters too!
One day, the sons approached the father asking to be taught the business of sari shops.  The business man was wise and knew that the only way to learn was by doing.  And that the most important lesson to be learned was customer relationships.
So he asked his sons to come the next morning to one particular store.  There he gave each of them a present.  And he asked them to give it to any one customer from this shop who they felt was most deserving to be given a present.  He gave them a month to do the job and said that they would all meet again in one month in that very store at the same time.

1)    Master R was in a hurry.  Why do tomorrow what you can do today?  He saw a lady paying for a sari at counter and immediately gave her a gift. “Thank you ma’am,” he said.  “We’re so happy you visited us today – please come again soon.  Here is a small gift to keep us in your thoughts and come back soon.”

2)    Master F was more patient.  He had spent some time at this same store before and knew of a college teacher who visited every Saturday.  Every Saturday, she bought a sari and gave it to her best student of the week (she taught at a girl’s college) the following Monday.  The saris she bought were not expensive since they were for students and the college teacher wasn’t particularly rich.  But the customer was a frequent shopper so Master F waited for Saturday and gave her the gift.  “Thanks for being our regular customer.  Please do keep coming.  Here’s a little something for you”.

3)    Master V was a little more like his father.  He waited for an entire month.  Then he pulled up the details of the customer who had the highest bill.  He realized that she had bought 4 saris at one go!  He drove to her house – a mansion quite a distance away from the shop.  Upon entering the mansion he learned that she was a rich industrialist’s wife with three teen-age daughters.  She had bought them all saris for Durga Puja.  So he gave her gift, thanking her for the business.

The three sons met their father at the end of the month.  He asked about their gifting experiences.
Master R, with his usual impatience jumped in.  “I realized that the sooner I gave the present to a recent customer, the higher the chances of that person coming again.  So I gave the gift to the first customer I saw buying a sari, hoping she could come again soon out of gratitude.  In fact, she did, only yesterday!  So I believe I’ve invested the present most profitably.”

Master F laughed at R’s simplicity – he explained how he waited for a week for the teacher who came in regularly and gave her the gift to keep her loyalty and frequency of visits.  And in fact, she did come again on all the following Saturdays too!

Master V found this all absurd.  He explained how he had identified the most valuable customer of the entire month and had given her the gift only yesterday.  If she comes again, she would indeed be profitable.  He showed every one the value of her bill to prove his point.

All 3 began arguing.  F and V felt that R was being impulsive.  Why the rush?  R argued that time is money.  And old customer does not even think of us as much as a recent customer does.  So the sooner he got the gift to work for him, the better. 
R and V felt that F was wasting money.  The teacher would have come anyway.  Why bother with a gift?  F argued that keeping a loyal customer was far more cost efficient than trying to create a loyal customer.
R and F scoffed at V.  “You really think that woman will want more saris after buying so many the last time?  She also lives so far away!” they said.  V argued back, “She likes our stuff.  She has spent so much with us.  One more visit and she’ll give us far more value than either of your customers.”

Their father intervened, “Let me get this straight.  R: You think the most recent customer is the most likely to buy again if you give her a gift.  F: You think the most frequent customer is likely to buy again if you give her a gift.  And V: You think a customer with highest historical value is most likely to buy again if you give her a gift.  What if I say you’re all right?”

The boys look puzzled. 

The father then pulled out a long list in which he had meticulously recorded actions of every one of his customer with their dates of visits and purchase details for the last 3 years.  He then gave the boys 10 presents again and said, “Why don’t you take a day more and try again? Tell me whom you would give these 10 presents to.  We’ll meet tomorrow on this.”

This time, the boys knew they were on to something.  Otherwise their father wouldn’t have parted with this list, which he updated every night and kept locked up in safe.  After some fighting and quibbling, the boys prioritized all customers and agreed on 6, who were:
Very Frequent (came in at least once a week) + Very Recent (all of them had come to one of their sari shops the previous day) + High Value (all of them had purchased over ten saris each in the last one year)
There was no dispute there – these 6 customers needed to be given presents.  But there was some trouble deciding on the last 4 gifts.  They had to decide between:

• High Value customers (those that had purchased 20 saris last year but not come even once this year? 
• Highly Frequent customers (those coming every day but buying very cheap, low margin saris)?
• Very Recent customers (all that came in this morning – hoping that they will come in soon again if they receive the presents)?

The next morning, they went to their father with this dilemma and apologized for not being able to decide on the balance 4 gifts.  “Great!” said the father.  “You’re now ready for database scoring”.  The first six customers basically have full scores on parameters of Recency, Frequency and Value.  The balance, you’ll now give less than perfect scores since not all of them score as well on all three parameters.

“But how should we decide which customer is more important?” asked the boys sheepishly.  “An infrequent customer with high value or a very frequent customer with low value or a very recent, high value 1st time customer?” he continued.

“You test!” said the father.  “You test by giving presents to those coming in once a week, and to those buying 5 saris at one go and to first-time customers.”  See who comes back to buy more.  Then you you’ll know what works for you and which parameter to value more after scoring.”
The boys were mixed with exhilaration and confusion.  They now realized the value scoring the list (database) their father had given them testing to refine their marketing strategy.  They were excited about building their own learning and experiences into scoring.

Learning:  All other things being equal

1. A Recent customer is more likely to respond to a marketing stimulus than a less recent customer
2. A more Frequent customer is more likely to respond to a marketing stimulus than a less frequent customer
3. A customer having given historically higher Value of business is more likely to respond to marketing stimulus than a customer having given less value to the business

Database scoring using RFV involves scoring a customer record on each of these 3 parameters (say classifying a customer as "High", "Medium" or "Low" on each) and then experimenting with various combinations to learn which of these segments offer highest opportunity for ROI on marketing stimulus.

Understanding Coalition Loyalty Marketing

Chapter One:

There once was a week-end market place called Mata Empower.

This market had 50 shops that served 50 customers.

Customers had a strange visiting pattern to this market.  On one weekend, you had all 50 customers visit, but on the following weekend, no customers came to this market.

The shop-keepers at Mata Empower were puzzled and wondered who these customers were and if they could be drawn into coming every weekend, as opposed to every alternate weekend.

So the shop-keepers went to a wise old lady called Ms. Beth Carrots, and asked for help.  Beth Carrots found out through her investigations that the 50 customers went to another market called Competition Bazar on alternate weekends.  So one weekend they spent at Mata Empower and the other they went to Competition Bazar.

As smart as she was, Beth Carrots designed a very interesting scheme. 

She asked the shop-keepers if they would each be willing to give her 1 new car in a year, if she could make customers come to them every weekend, as opposed to every alternate weekend. 

“Yes!” they all shouted.  These were very good customers and if they came every weekend, the shop-keepers could make enough profit to gift 1 car a year.

Chapter Two:

So Beth Carrots prepared flyers and posters and announced, “One free car to every customer who visits Mata Empower 50 times in a year!”  To track the customer visits, she designed a loyalty card that gave 1 point per visit to every customer that came to the market.  And when 50 points were accumulated on the card, they could be redeemed for a new car!

Customers were delighted!  In the next one year, 40 of the 50 customers started coming every weekend to Mata Empower.  In fact, some new customers from Competition Bazar also switched and started regularly patronizing Mata Empower after they heard about this new scheme.

Sales were rocking! 

But Beth Carrots was not happy.  She realized that 10 customers still refused to switch.  And they kept visiting Competition Bazar every alternate weekend.  She wondered why.  She also realized that she was sitting on 10 cars that she did not need to give out (because these cars were left over from customers who only came in half the time and so lost their points at end of year).  She was wondering if she could put these to good use.

As smart as she was, she came up with another scheme to enhance the Mata Empower offering.

She spoke to the town money-lender called Mr. Skate Banks.  Skate Banks basically made profits by loaning people money. 

So she convinced Skate Banks to give credit to customers of Mata Empower.  And he could use the unused reward cars as his security.  However, to avail of this offer, he would need to share details of all customer credit purchases (at Mata Empower and at Competition Bazar), with her.  Skate Banks readily agreed.  He would get ready-customers and also the security of cars if they defaulted.  Information was a small price to pay for this.

So Beth Carrots made another announcement.  Members of Mata Empower could now write, “Skate Banks” on their card and shop-keepers at Mata Empower would now sell them goods on credit.

Customers loved the credit line - They not only came regularly but also bought more from Mata Empower.  Skate Banks loved lending money to them – they were good and diligent in paying back on time.  When the occasional customer lapsed, he recovered his dues from a car that Beth Carrots promptly gave to him to make good his losses.

Shop-keepers loved this too.  They made diligent notes on the customers who bought on credit and recovered their money from Skate Banks, who in turn recovered his monies from the members.  All was going well.

Chapter Three

But Beth Carrots was carefully studying the purchase patterns of the 10 customers she could not win-back.  They had taken credit lines from Skate Banks and through this information, she learned something very interesting.  Each of the ten customers was a regular patron of a barber shop in Competition Bazar.  This barber, Mr. New Partner was very good with his skill and his talk.  He charmed and entertained while he groomed his customers.  They were very loyal to him.

So Beth Carrots went to visit New Partner.  She told New Partner of what she had done with Mata Empower and how she had learned that 10 of her customers were also good patrons of New Partner.  Then she made him an offer. 

“If you agree to move your barber shop from Competition Bazar to Mata Empower, I am sure that at least 10 of your customers will be very happy.  This is because they can now all earn a new car every year!  Moreover, I can share with you information about them that you will find very helpful to talk to them even more – I’m sure with your charms and this information, you can build an even better relationship with them.  Moreover, all our other customers at Mata Empower can now visit you as well when they come in every week.”

“Most importantly, as a joining bonus, I will give you a new car right away if you open shop at Mata Empower!”

New Partner couldn’t refuse.  The next weekend, New Partner moved his barber shop to Mata Empower and wrote to all his customers about the move.  They were delighted!  They had all heard of the shiny new cars being given out by Mata Empower and were so happy to join the program.

Other shop-keepers at Mata Empower were delighted too!  New Partner was valuable and he helped them bring in new customers.  In addition, New Partner received the patronage of existing customers of Mata Empower leading to his delight as well.

Chapter Four

But best of all, everybody loved Beth Carrots!  She kept whispering useful information in their ears every now and then that could be used to create even more delight.

As an example, Beth Carrots told Mr. Apparel that Mrs. Smith had just bought a lot of baby food from Mr. Grocer.  And Apparel was able to offer a special deal in baby clothes.  And when Beth Carrots offered the special deal to Mrs. Smith on the baby clothes, Mrs. Smith hugged her in joy… how timely!

And Skate Banks did his part too – he kept alerting Beth Carrots when he saw customers of Mata Empower spending a lot of time and money somewhere else – some other market or shop or service.  And Beth Carrots promptly reached out and convinced the new business to be part of Mata Empower to add even more value to customers and the partners and to Skate Banks. 

One evening, Beth Carrots, smiling to herself wondered aloud, “Have I just set up a coalition marketing initiative?”

Five Key Takeaways:

1.   Coalition Loyalty initiatives are basically cooperative marketing efforts and can emerge from commitment from a variety of like-minded stakeholders with a common purpose - these could be tenants of a mall, various businesses participating in a common card-based points initiative or business owners on a high-street.
2.  Before one can see the benefits, stakeholders need to commit to value – new cars as in this story, or more commonly, points, central CRM software and other such infrastructure as is necessary.  This commitment of value is a crucial prerequisite to design and communicate a compelling proposition to customers for inducing profitable behavior change.
3.   Information is the life-blood in coalitions.  Beth Carrots in this story used a card that could be tracked to know more about her customers and then used that information to create value.  Without a strong and committed process to gather and leverage information, the coalition can fall flat. 
4.  Marketing framework, Financial management of points, Communication, Technology infrastructure and Partner management are 5 critical functions, typically best served by a neutral centralized entity.  This entity can collect fees for points dispensed, pay out funds for points redeemed and use the breakage in points to fund program management and member communication.
5.  Credit becomes a useful tool to deliver a bump in sales and to access information, otherwise not necessarily accessible.  A bank-issued credit card, debit card, prepaid card or other such device is normally a great tool to make this happen.

Sales Channel Engagement & Loyalty Principles

Chapter 1:

Once upon a time in a small village in India, lived a potter who had 4 daughters called,

1. East Devi,
2. West Devi,
3. North Devi, and
4. South Devi.

Every day, the potter made 20 pots. And each daughter carried 5 pots on her head and walked to the four corners of the village. They sold each pot for one rupee and every evening, each daughter carried 5 rupees back home collecting a total of 20 rupees a day for the potter.

The potter only made twenty pots each day, because each of his daughters could carry no more than five pots on her head.

Chapter 2:

One day, East Devi was approached by a stranger who made her an interesting proposition. She described this over dinner to their father, the potter.

East Devi: I was approached by a man who said that he could buy all of my five pots for 2 rupees each instead of 1 rupee. This is because he can sell them for a much higher price in the neighbouring village, Ram Gaon.

However, he has a broken arm and cannot carry loads. So he needs me to carry the 5 pots for him to Ram Gaon.

I can make 10 rupees a day instead of 5 rupees. But I will have to spend the day carrying pots for him to the Ram Gaon instead of selling them in our own village. Besides, my chappals are torn so I need new chappals to walk so much every day!

Potter: That sounds good. We can make 5 rupees more every day, and I can make you chappals from the leather than I had bought from the fair last Diwali.

So it came to pass that the Potter made East Devi chappals and she helped deliver pots to Ram Gaon. The family’s income went up by 5 rupees a day and they were all very happy.

Chapter 3:

About a month later, West Devi was approached by a stranger who made her an interesting, albeit very different proposition. She described this over dinner to their father, the potter.

West Devi: I was approached by a man from Lakhan Gaon. While he offered me our current price of 1 rupee per pot, he offered to buy 10 pots every day, instead of the five I sell, because people from Lakhan Gaon love our pots. He is also very strong, and he can carry all ten pots to Lakhan Gaon himself! So I don’t have to carry them like my sister.

However, since he will spend the whole day carrying and selling pots, his condition is that I should cook food for him. So every day, while he is in the market selling pots, I will have cook food for him and take a lunch box to him so that he can eat when his work is done.

So I too can make 10 rupees a day instead of 5 rupees but will need a lunch box to carry his food. Can you make me a lunch box, father?

Potter: That sounds good. We can now make five more rupees. And I can make you a lunch box from clay and wood that I can get from the forest.

So it came to pass that the potter made West Devi a nice lunch box and she helped deliver lunch to Lakhan Gaon every day. The family’s income went up by an additional 5 rupees a day and they were all very happy.

Chapter 4:

A month later, North Devi was approached by the temple priest. She described her conversations with the priest, over dinner with her father, the potter.

North Devi: Dear father, the temple priest met me today. He uses one pot every day to plant a tulsi sapling. And he then gifts the pot with the tulsi sapling, as a special blessing to one person every day.

He is aging and finds it difficult to keep up. So he told me that we would be willing to pay 10 rupees for just one pot. However, I would have to spend the morning with him to fill the pot with good soil from the field. Then select a good tulsi sapling, plant the sapling in the pot, recite the holy mantras (prayers) and then deliver the pot with the sapling to the home of the person he chooses that day.

I would love to do this. But, father, you will need to teach me holy mantras and how to plant tulsi saplings.

Potter: That sounds very good. We can now make five more rupees. And I can teach you all about planting tulsi saplings and mantras. My mother taught me and I still have her book of all prayers that I can give you. You will also earn some blessings for our family.

So it came to pass that the potter taught North Devi mantras and the art of nurturing tulsi saplings and she devotedly helped the temple priest. The family’s income went up by an additional 5 rupees a day and they were all very happy.

Chapter 5:

By now some villagers started missing the lovely pots that they were so used to buying from the potter’s daughters. With three corners of the village now not being served, things were getting complicated.

Among those who missed the pots, was a very sharp kirana shop owner called, Mr. New Channel. Mr. New Channel had four sons who had completed their schooling and were now looking for work.

Mr. New Channel was very sharp and quickly learned about why the villagers were getting an irregular supply of pots. He called his youngest son, Liaise Singh who was good friends with South Devi and whispered something into his ears.

That evening South Devi shared her experiences with her father over dinner.

South Devi: Dear father, I spoke to my friend Liaise Singh today. He presented me with a proposition from his father. Liaise Singh and his three brothers would like to start earning a living. And they can help us make us all more money too!

Our fellow villagers are missing our regular supply of pots. Mr. New Channel is willing to buy 20 pots from us every day at fifty paise each. His four sons will carry them to the four corners of the village and sell them for us, just like my sisters and I were doing a few months ago.

And instead of me earning 5 rupees, we can now earn ten rupees by selling 20 pots to Mr. New Channel.

Also dear father, you’re growing old and also spending so much time helping my sisters with chappals, or making food boxes or teaching them mantra’s. I’ll spend my time making the pots and you can rest all day.

But you’ll have to bring me clay from the forest every day to make all the pots.

So it came to pass that the potter brought clay every morning for North Devi who made beautiful pots. And while Mr. New Channel’s son’s sold 20 pots in the village, her sisters sold pots in their own unique ways with support from their father.

The family’s income had now doubled from twenty rupees to forty rupees and they were all very happy.

Over dinner one night, the potter remarked, thinking back on the events of the last six months.

Potter: Hmm! I spoke to my brother in the city who has an MBA about what has happened with our pot-making business. And in his own style he described how the core driver of our success has been, “Relevant Engagement.” He said,

East Devi got us double the price but needed transport support

West Devi got us double the volume but needed meal vouchers

North Devi got us into a pottery solution but needed training

South Devi helped us scale operations but needed price discounts

Each of you has doubled your income but so very differently!

Moral of the Story:

One-size-fits-all approach to Channel Loyalty Initiatives rarely succeeds.

Channel Engagement programmes are not about rebates and discounts only. Nor are they about doling out gifts and freebies.

A strong engagement initiative begins with a candid situation analysis and empowers your channel partners to succeed with respect to needs of their customers in turn.

Designing this may be difficult and time-consuming and requires effort to gain insight.

But the result is Strong Relevance and alignment of resources towards mutual Win: Win.

Channel loyalty manifests itself as an outcome.