E-World is an online electronics retailer. It has a vast group of customers. To understand and segment their customers, they consider using RFM. They pick a sample of 62,500 of their customers, which is a good representation of their whole customer base. They pulled their record of Recency, Frequency and Monetary for the past 100 days, and start the analysis.

Using the 62,500 subjects in the pool, E-World marketing specialist summarized different RFM groups' hit-rate (so called buying rating/response rate) for the new product DIVO (Sheet HitRate), which is sold for $72. To direct-market the product to each consumer, the marketing cost is $6 per person. Product gross margin is 40%.

a) Please sort the data and list the 10 RFM groups with the highest hit rate

b) If the firm decides to market to every of the 62,500 customers, what is the gross profit/loss

c) Using the hit-rate information, please make the recommendation and list the profitable RFM groups.

d) If the firm chose to only market to these profitable groups, what is the gross profit/loss

e) Comment on the effectiveness of RFM

RFM Group Hit Rate 111 0.236 121 0.231 112 0.224 123 0.217 113 0.215 131 0.215 221 0.214 122 0.214 311 0.208 211 0.207 124 0.207 212 0.207 114 0.206 132 0.203 322 0.203 141 0.202 313 0.201 231 0.199 223 0.198 115 0.196 142 0.194 312 0.190 213 0.189 222 0.188 143 0.187 314 0.185 331 0.184 152 0.182 151 0.182 411 0.179 421 0.179 412 0.176 134 0.176 214 0.176 341 0.176 413 0.175 225 0.175 133 0.175 511 0.171 422 0.171 521 0.169 153 0.168 232 0.168 251 0.168 431 0.165 241 0.165 215 0.164 334 0.163 432 0.163 321 0.163 324 0.162 323 0.159 423 0.158 125 0.158 315 0.157 144 0.154 242 0.153 154 0.152 441 0.150 351 0.150 512 0.150 414 0.149 224 0.148 531 0.148 342 0.147 233 0.147 332 0.146 145 0.146 415 0.146 234 0.143 252 0.143 532 0.141 424 0.140 245 0.140 235 0.139 325 0.137 253 0.135 522 0.133 135 0.133 433 0.133 333 0.132 243 0.132 514 0.131 513 0.131 541 0.131 355 0.130 352 0.129 335 0.127 425 0.126 434 0.126 244 0.124 254 0.124 343 0.122 443 0.121 524 0.121 525 0.120 155 0.119 523 0.119 442 0.116 353 0.115 451 0.114 345 0.114 542 0.114 453 0.113 344 0.111 452 0.110 444 0.110 354 0.108 515 0.107 533 0.106 435 0.104 543 0.103 551 0.101 255 0.100 445 0.096 534 0.094 552 0.093 553 0.087 454 0.084 555 0.075 535 0.075 455 0.075 554 0.071 544 0.062 545 0.054