RFM - A Precursor to Data Mining

RFM in Action

RFM was initially utilized by marketers in the B-2-C space - specifically in industries like Cataloging, Insurance, Retail Banking, Telecommunications and others. There are a number of scoring approaches that can be used with RFM. We'll take a look at three:

RFM - Basic Ranking
RFM - Within Parent Cell Ranking
RFM - Weighted Cell Ranking

Each approach has experienced proponents that argue one over the other. The point is to start somewhere and experiment to find the one that works best for your company and your customer base. Let's look at a few examples.

RFM - Basic Ranking

This approach involves scoring customers based on each RFM factor separately. It begins with sorting your customers based on Recency, i.e., the number of days or months since their last purchase. Once sorted in ascending order (most recent purchasers at the top), the customers are then split into quintiles, or five equal groups. The customers in the top quintile represent the 20% of your customers that most recently purchased from you.

This process is then undertaken for Frequency and Monetary as well. Each customer is in one of the five cells for R, F, and M

Experience tells us that the best prospects for an upcoming campaign are those customers that are in Quintile 5 for each factor - those customers that have purchased most recently, most frequently and have spent the most money. In fact, a common approach to creating an aggregated score is to concatenate the individual RFM scores together resulting in 125 cells (5x5x5).

A customer's score can range from 555 being the highest, to 111 being the lowest.

RFM - Within Parent Cell Ranking

This approach is advocated by Arthur Middleton Hughes - one of the biggest proponents of RFM analysis. It begins like the one above, i.e., all customer are initially grouped into 5 cells based on Recency. The next step takes customers in a given Recency cell - say cell number 5, and then ranks those customers based on Frequency. Then customers in the 55 (RF) cell are ranked by monetary value.

RFM - Weighted Ranking

Weightings used by RFM practitioners vary. For example some advocate adding the RFM score together - thus giving equal weight to each factor. Consequently, scores can range from 15 (5+5+5) to 3 (1+1+1). Another weighting arrangement often used is, 3xR + 2xF + 1xM. In this case, scores can range from 30 to 3.

So which to use? In reality, there are many other permutations of approaches that are being used today. Best-practice marketing analytics requires a fine mix of mathematical and statistical science, creativity and experimentation. Bottom line, test multiple scoring methods to see which works best for your unique customer base.

Establishing a Score Threshold

After a test or production campaign, you will find that some of the cells were profitable while some were not. Let's turn to a case study to see how you can establish a threshold that will help maximize your profitability. This study comes from Professor Charlotte Mason of the Kenan-Flagler Business School and utilizes a real-life marketing study performed by The BookBinders Book Club (Source:Recency, Frequency and Monetary (RFM) Analysis, Professor Charlotte Mason, Kenan-Flagler Business School, University of North Carolina, 2003).

BookBinders is a specialty book seller that utilizes multiple marketing channels. BookBinders traditionally did mass marketing and wanted to test the power of RFM. To do so, they initially did a random mailing to 50,000 customers. The customers were mailed an offer to purchase The Art History of Florence. Response data was captured and a "post-RFM" analysis was completed. This "post analysis" was done by freezing the files of the 50,000 test customers prior to the actual test offer. Thus, the impact of this test campaign did not effect the analysis by coding many (the actual buyers) of the 50,000 test subjects as the most recent purchasers. The results firmly support the use of RFM as a highly effective segmentation approach.

Purchased the book = yes; months since last purchase = 8.61; total # purchases = 5.22; dollars spent = 234.30
Purchased the book = no; Months since last purchase = 12.73; total # purchases = 3.76; dollars spent = 205.74

Customers that purchased the book were more recent purchasers, more frequent purchasers and had spent the most with BookBinders.

The response rate for the top decile (18%) was twice the response rate associated with the 5th decile (9%).

Results from this test were then used by BookBinders to identify which of their remaining customers should receive the same mailing. BookBinders used a breakeven response rate calculation to determine the appropriate RFM cells to mail.

The following cost information was used as input:

Cost per Mail-piece $0.50

Selling Price $18.00

BookBinders Book Cost $9.00

Shipping Costs $3.00

Breakeven is achieved when the cost of the mailing is equal to the net profit from a sale. In this case:

Breakeven = (cost to mail the offer/net profit from a single sale)

= $0.50/($18-9-3)

= ($0.50/6)

= 8.3% = Breakeven Response rate

So, according to the test offer, profit can be obtained by mailing to cells that exhibited a response rate of greater than 8.3%

RFM dramatically improved profitability by capturing 71% of buyers (3,214/4,522) while mailing only 46% of their customers (22,731/50,000). And the return on marketing expenditures using RFM was more than eight times (69.7/8.5) that of a mass mailing.

Number of Cells and Cell Size Considerations

As previously mentioned, RFM was initially utilized by companies that operated in the B-to-C marketplace and generally possessed a very large number of customers. The idea of generating 125 cells using quintiles for R, F and M has been a very good practice as an initial modeling effort. But what if you are a B-to-B marketer with relatively fewer customers? Or, what if you are a B-to-C marketer with an extremely large file with millions of customers? The answer is to use the same approach that is used in data mining -- be flexible and experiment.

Establishing a minimum test cell size is a good place to start. Arthur Hughes recommends the following formula:

Test Cell Size = 4 / Breakeven Response Rate.

The Breakeven Response Rate was addressed above in the BookBinders case study. The number "4" is a number that Hughes has found works successfully based on many studies he has performed. BookBinders Breakeven Response Rate was 8.3%. Using the above formula, you would need a minimum of 48 customers in each cell (4/0.083). BookBinders actually had 400 customers per cell, so they had more than adequate comfort in the significance of their test. In reality, BookBinders could have created as many as 1,041 cells if they were comfortable using the minimum of 48 per cell. As an example, they could have used deciles as opposed to quintiles and established 1,000 cells (10 x 10 x 10). The more cells the finer the analysis, but of course the law of diminishing returns will arise.

Other weighting considerations can be used for small files. If your Breakeven Response Rate is 3%, your minimum cell size would be 133 customers (4/0.03). Therefore, if you have 12,000 customers you could have about 90 cells (12,000/133). As such, a 5 x 5 x 4 (100 cells) or a 5 x 4 x 4 (80 cells) approach may be appropriate.

Conclusions

RFM, BI and data mining are all part of an evolutionary path that is common to many marketing organizations. While RFM has been practiced for over 40 years, it still holds great value for many organizations. Its merits include:

- Simplicity - easy to understand and implement

- Relatively low cost

- Proven ROI

- The demand on data requirements are relatively low in terms of variables required and the number of records

- Once utilized, it sets up a broader foundation (from an infrastructure and business case perspective) to undertake more sophisticated data mining efforts

RFM's challenges include:

- Contact fatigue can be a problem for the higher scoring customers. A high level cross-campaign communication strategy can help prevent this.

- Your lowest scoring customers may never hear from you. Again, a cross-campaign communications plan should ensure that all of your customers are communicated with periodically to ensure low scoring customers are given the opportunity to meet their potential. Also, data mining and the prediction of customer lifetime value can help address this shortcoming.

- RFM includes only three variables. Data mining typically finds RFM-based variables to be quite important in response models. But there are additional variables that data mining typically use (e.g., detailed transaction, demographic and firmographic) that help produce improved results. Moreover, data mining techniques can also increase response rates via the development of richer segment/cell profiles that can be used to vary offer content and incentives.

As stated before, successful marketing efforts require analytics and experimentation. RFM has proven itself as an effective approach to predicting response and improving profitability. It can be an important stage in your company's evolution in marketing analytics.



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Importance of Data Mining Services in Business

Data mining is used in re-establishment of hidden information of the data of the algorithms. It helps to extract the useful information starting from the data, which can be useful to make practical interpretations for the decision making.
It can be technically defined as automated extraction of hidden information of great databases for the predictive analysis. In other words, it is the retrieval of useful information from large masses of data, which is also presented in an analyzed form for specific decision-making. Although data mining is a relatively new term, the technology is not. It is thus also known as Knowledge discovery in databases since it grip searching for implied information in large databases.
It is primarily used today by companies with a strong customer focus - retail, financial, communication and marketing organizations. It is having lot of importance because of its huge applicability. It is being used increasingly in business applications for understanding and then predicting valuable data, like consumer buying actions and buying tendency, profiles of customers, industry analysis, etc. It is used in several applications like market research, consumer behavior, direct marketing, bioinformatics, genetics, text analysis, e-commerce, customer relationship management and financial services.

However, the use of some advanced technologies makes it a decision making tool as well. It is used in market research, industry research and for competitor analysis. It has applications in major industries like direct marketing, e-commerce, customer relationship management, scientific tests, genetics, financial services and utilities.

Data mining consists of major elements:

    Extract and load operation data onto the data store system.
    Store and manage the data in a multidimensional database system.
    Provide data access to business analysts and information technology professionals.
    Analyze the data by application software.
    Present the data in a useful format, such as a graph or table.

The use of data mining in business makes the data more related in application. There are several kinds of data mining: text mining, web mining, relational databases, graphic data mining, audio mining and video mining, which are all used in business intelligence applications. Data mining software is used to analyze consumer data and trends in banking as well as many other industries.


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Utilize Online Data Entry Services From India For Extended Profits

Numerous companies are seeking help for data entry services in order to better manage their company database. Many changes and innovations have taken place in this field that has greatly facilitated and accelerated often tedious and time consuming processes. There are a multitude of data entry companies offering useful solutions to businesses of all types. Hiring an online data entry company in India is an economical option. These outsourcing companies provide high quality work to businesses around the world.

Many firms have started passing their data entry work on to third party firms in an effort to save on overhead costs. The burden of employing a full time data entry associate on a salary basis and providing them with all the benefits of regular employees is immense, whether the work load is large of small for a particular month. Hiring a consultant will enable you to only incur costs when necessary.

Data is a very important part of any business. Therefore it is critical that it is handled with experienced hands and skills. Well managed data can be used in an endless number of ways to better plan and manage the undertakings of a business. As a part of data entry services, data conversion is gaining popularity. The companies are using the latest techniques and tools for designing data entry solutions. In order to make data useful for anyone, its conversion is important. Data that requires a longer duration of processing time should be outsourced for better efficiency of information flow.

Different types of businesses make use of these services. They primarily have an immense database to manage, for which to India is a cost effective option. For instance, pharmaceutical companies, educational institutes, law firms, E-Commerce sites, and others make use to data entry services for higher profits.

Outsourced data entry services have been very beneficial for companies by increasing sales, yet lowering labor expenses. They help in expanding the client base internationally, which enables global access to international customers with ease. Generally the data that is complex and takes longer processing times should be outsourced for better, timelier results. Some businesses can even take advantage of data conversion, document processing, and catalog development if they need it.

There are many advantages of outsourcing data entry services to developing countries like India. Here the workforce is cheap yet highly skilled. Thus, businesses can get better quality of work at relatively lower prices in comparison to companies in developed countries. There are a tremendous number of data entry service providers. One of these firms will be a great tool to take your business to the next level.


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Top Data Mining Tools

Data mining is important because it means pulling out critical information from vast amounts of data. The key is to find the right tools used for the expressed purposes of examining data from any number of viewpoints and effectively summarize it into a useful data set.

Many of the tools used to organize this data have become computer based and are typically referred to as knowledge discovery tools.

Listed below are the top data mining tools in the industry:

    Insightful Miner - This tool has the best selection of ETL functions of any data mining tool on the market. This allows the merging, appending, sorting and filtering of data.
    SQL Server 2005 Data Mining Add-ins for Office 2007 - These are great add-ins for taking advantage of SQL Server 2005 predictive analytics in Office Excel 2007 and Office Visio 2007. The add-ins Allow you to go through the entire development lifecycle within Excel 2007 by using either a spreadsheet or external data accessible through your SQL Server 2005 Analysis Services instance.
    Rapidminder - Also known as YALE is a pretty comprehensive and arguably world-leading when it comes to an open-source data mining solution. it is widely used from a large number of companies an organizations. Even though it is open-source, this tool, out of the box provides a secure environment and provides enterprise capable support and services so you will not be left out in the cold.

The list is short but ever changing in order to meet the increasing demands of companies to provide useful information from years of data.

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Data Mining, Visual Analytics, and The Human Component!

With all the massive amounts of data we are collecting from the Internet, well, it is just amazing the things we can do with it all. Of course, those concerned about privacy, well, you can understand why organizations like the Electronic Freedom Foundation is often fit to be tied. Still, think of all the good that can become of all this data? Let me explain.

You see, with the right use of visual analytics and various data mining strategies, we will be able to do nearly anything we need too. And, yes, I guess it goes without saying that I have a ton of thoughts on Visual Analytics of the Internet, Mobile Ad Hoc networking, and Social Networks along with some concepts for DARPAs plan for "crowd sourcing" innovation, it makes perfect sense to me, as each participant becomes basically a "neuron" and we use the natural neural network scheme.

What we need is a revolution in data mining visual analytics, so the other day I spent 20-minutes considering this and here are my thoughts. I propose an entirely new concept herein. Okay so let me explain my concept. But first let me briefly describe the bits and pieces of ideas and concepts I borrowed from to come up with this;

    There is an only UFO or Sci Fi tale I read, where the alien race said; "There is a whole new world waiting for you if you dare to take it,"
    Taking the "it" part of that line and calling "it" = "IT" as in Information Technologies.
    Next, combining that "IT" or "It entity" with that old Christian apocalyptic "mark of the beast" and the old computer system in Belgium 30-years ago claiming to be big enough to track every world transaction, also nick-named the beast.
    Then combining that concept with V. Bush's concept of "recording a life" or the later "life log theory" from Bell Labs.
    Then using the concept of the eRepublic, where government is nothing more than a networked website.
    Then considering the thought of Bill Gate's concepts in "the Road Ahead" where the digital nervous system of a corporation was completely and fully integrated.
    Combined with SAPs, and Oracles enterprise solutions
    Combined with Google's data bases
    Combined with the Pangaea Project for kids to collaborate in elementary school around the world and programming the AI computer, using a scheme designed by Carnegie Mellon to crowd source the teaching of an AI system. "eLearning Collaborative Networks like Quorum or Pangaea"
    Combined with IBMs newest mind map visualization recently in the news..
    Combined with these following thoughts of mine:

    My Book; "The Future of Truck Technologies," and 3D and 4D Transportation Computer Modeling; Page; 201.
    My Book; "Holographic Technologies," specifically; Data Visualization Schemes; Page 57 Chapter 5.
    My Article on 3D and 4D Mind Maps for Tracking and Analyzing.
    My Article on Mind Maps of the Future and Online style Think Tanks
    My Article on Stair Step Mentorship for Human Learning in the Future and Never Aging Societies.

Okay now let me explain the premise of my concept for Visual Analytics;

First, forget this whole idea of a 2D mind mapping concept or chart used to show links between terrorist players, cells, assets, acquaintances, etc., the way it is laid out currently - make it 3D, actually make it 4D and 5D where some layers can only be seen by a select few, and let's say a 6D level that can only be accessed by an AI super computer [why; because I don't trust humans, they can't be trusted, i.e. WikiLeak, leaker for instance].

Next ALL the data is stored within in the sphere. But to access the data on the outer side of the sphere, picture Earth's surface, the ball or sphere (with grids like a map of the globe) rolls around on a giant grid paper. When you want to look at a particular event, person, subject, or whatever, a particular point on the sphere's grid touches a corresponding point on the grid paper it rolls on, the grid paper it rolls on can wrap around and morph itself to the sphere or contour itself so the next corresponding piece of information on the surface can be accessed, rolling or spinning.

Picture a selectric typewriter ball on a shaft as a 2D model to consider this, now make it all 3D in your mind, and the paper molds around the sphere as it accesses, or in the case of a selectric typewriter it types. Now the Sphere is hollow inside containing layers, just like the earth, crust, mantel, and core. Information goes deep or across, every piece of information is connected, think about the earliest string theory models for this.

Great thing about my visualization concept is I believe all this math exists, even though in reality string theory is mostly bunk, but the math to get there makes this possible. As the information goes deep, think about the iPad touch screen, or the Microsoft restaurant "menu on a table" concept, or the depictions of Minority Reports, moving of the screens by way of motion gestures, I believe Lockheed also has this concept up and running for air-traffic control systems, prototype versions, perhaps the military is already using it, as it has massive applications for the net centric battlespace visualization too.

Okay so, some levels go through a frame-burst scenario taking you into another level, where the data generally stored at the almost infinite number of grid points and cross connected to every other is nothing more than a nucleus with additional data spinning around it. But the user cannot access all that information, without clearances, the AI system has access to all of it, while a sorting system is a series of search features within search features, with non-linked data also. You can't break into it; it's not connected to the users' interface at all, think of the hidden data as electrons unattached around the data. The data is known to exist but cannot be accessed that would be the 5D level, and 6D level no human may get too, but the data exists.

You know that surfer dude in Hawaii that came up with the "Grand Theory of the Universe" why not use his model for our visualization, in spherical form, again, the mathematics for all this already exists.

You see, what I need is a way to find people like me, I want to find these thinkers and innovators to take it all to the next level, and if the visualization is there, we can find; The Good Guys, Bad Guys, and the Future all at once. Why do I want a "Neural Network" visualization system in a sphere? It seems to me that this is how the brain does things, and what we are doing here is creating a Collective Brain, using each individual assigned to an "ever-expanding" unit of data, along a carrier or flow.

Remember when Microsoft Labs came out with that really cool way to travel through the Universe and look at all the celestial bodies along the way, using all the Hubble Pictures collected? It's kind of like that, you travel to the information, discover as you travel and it piques your curiosity as you go triggering your own brain waves, and splashing the users minds with chemical rewards as they go, as they discover more information, expanding their understanding as well, it just seems to me this is how it all works anyway.

Think of that old Sci Fiction concept where the Earth and our solar system are merely an atom of a chemical compound within a cell of the human body, all we can see is all the other compounds around us because everything is so small, thus, we cannot see the whole picture and what appears to be an entire universe would only be a few thousand cells close enough for us to see. And time itself is slow, as the electrons or planets moving around the atom appears to take a year to circle the nucleus instead of 10,000 times a second.

So, combining all these types of thoughts, this is how I envision how the future visualization tools would work.

Now then, using the whole concept of connecting the dots for information or even building an AI search feature scouring the system at speeds of terabytes a second, the AI computer can become the innovator, thanks to the user asking the question, and all the neurons (individual humans) with all their data putting in the information. You just need the best questions, you get instance answers.

Okay so, take this concept one step further; the AI super computer's operation is a "brain wave" and that brain wave is assigned a number, you can have as many brain waves, as the internet has IP addresses, with whatever scheme for that you choose. And your query can search the former queries too. The user's questions are as important as the data itself.

Thus, it helps us find the innovators, the question askers, once we know that, we have the opportunity for unlimited instant knowledge. Data visualization can take us there, and it removes all the fog of uncertainty, and answers most all the questions we could ever hope to ask, and comes up with its own questions as well. Does this make sense?

This is the type of visualization I need to faster access information, and I can solve all the problems, even the ones humans refuse to solve, or doom themselves to repeateth. That's my preliminary thought on this - may we start such a dialogue on the topic? If so, email me, and I hope you enjoyed today's dialogue?


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Is Web Scraping Relevant in Today's Business World?

Different techniques and processes have been created and developed over time to collect and analyze data. Web scraping is one of the processes that have hit the business market recently. It is a great process that offers businesses with vast amounts of data from different sources such as websites and databases.

It is good to clear the air and let people know that data scraping is legal process. The main reason is in this case is because the information or data is already available in the internet. It is important to know that it is not a process of stealing information but rather a process of collecting reliable information. Most people have regarded the technique as unsavory behavior. Their main basis of argument is that with time the process will be over flooded and therefore lead to parity in plagiarism.

We can therefore simply define web scraping as a process of collecting data from a wide variety of different websites and databases. The process can be achieved either manually or by the use of software. The rise of data mining companies has led to more use of the web extraction and web crawling process. Other main functions such companies are to process and analyze the data harvested. One of the important aspects about these companies is that they employ experts. The experts are aware of the viable keywords and also the kind of information which can create usable statistic and also the pages that are worth the effort. Therefore the role of data mining companies is not limited to mining of data but also help their clients be able to identify the various relationships and also build the models.

Some of the common methods of web scraping used include web crawling, text gripping, DOM parsing, and expression matching. The latter process can only be achieved through parsers, HTML pages or even semantic annotation. Therefore there are many different ways of scraping the data but most importantly they work towards the same goal. The main objective of using web scraping service is to retrieve and also compile data contained in databases and websites. This is a must process for a business to remain relevant in the business world.

The main questions asked about web scraping touch on relevance. Is the process relevant in the business world? The answer to this question is yes. The fact that it is employed by large companies in the world and has derived many rewards says it all. It is important to note that many people regarded this technology as a plagiarism tool and others consider it as a useful tool that harvests the data required for the business success.

Using of web scraping process to extract data from the internet for competition analysis is highly recommended. If this is the case, then you must be sure to spot any pattern or trend that can work in a given market.



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Data Entry Services Help to Maintain Data Correctly

Data of any big or small organizations should be properly maintained. Any mistake on the data entry may prove blunder for the company. All companies have a separate branch that maintains all the datas. In an organization there are various types of data that need to be maintained. It is most commonly found that the data entered by the in-house staff are not accurate and they always do some sort of mistakes. There are many counties in the world that provide data entry services. The service offered by them is error free and up-to-date. The service provided by a reputed firm is commendable. If a company feels problem in maintaining records then it can hire a reputed private firm or an experienced individual.

In this modern world, data entry is the most fundamental and internal function of every business firms. Many companies expertise in the field of providing the services. A company will prosper only when the data of an organization is properly maintained. To get the data entry service from an expertise country will save time, save money and one will get quick service. Off shoring the service from some other company is much more reliable and one can get a quality work. It is the best option today. Data entry from product catalogs to web based systems, from hard/soft copy to any database format, online order entry and creation of new databases are some of the examples of the data entry.

There are many countries that provide data entry services. Depending on the necessity of the company, one can hire a private firm or hire an individual for maintaining all the datas. The services provided by India are excellent and many countries are lined up to take its service. The professionals of India are very excellent and enable to manage, integrate, analyze and secure any critical data. They provide industry's best service. It is a very tiring job and one need to be very much attentive in inserting those n numbers of data. If you want to seek the service from any private firm or an individual and you are totally naïve in this matter then internet can help you out. It will give information about the various companies across the world that provides quality data service.

These services offer outsource data entry, data entry outsource, outsourcing data entry, data entry outsourcing, offshore data entry, data entry companies. If you hire a reputed firm that provides excellent services then all your tension will get over. You will feel relax as all the affairs of your company is very systematically maintained. A very proficient person is required to maintain those datas. Most of the companies opt for this service. This service is a blessing for any big and small organization as it will keep all the records correctly. Today, most of the companies rely on this service. This sort of service reduces labor cost and gives an excellent result. Its advantage is endless.



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