Case Study: Applying RFM segmentation to the SilverMinds catalogue

Abstract

This paper describes how a mail order company, SilverMinds Direct, was able to improve its revenues by over 5 per cent through better segmentation of its 250,000 customer database. RFM — recency, frequency and monetary value — segmentation was used. SilverMinds' mailing strategy was already quite efficient based on recency and frequency. This was improved by the addition of RFM scores. In addition, the RFM segmentation gave a low-cost and easy-to-use framework to find previously hidden opportunities. This paper shows how a small company with limited analytical and statistical resources was able to extract greater value from its marketing database by RFM segmentation and analysis. The paper describes the methodology, rationale and results of SilverMinds' RFM segmentation project plus some of the other applications of the segmentation strategy. The project gave a return on investment (ROI) of over 20 times.