Papaya Papaya is an online clothing retaller. New customers are acquired by advertising in specialty magazines, newspapers and TV. Papaya has maintained a detailed database about its customers containing all the relevant information about them and their purchases. Papaya wants to mail a 1-page flyer promoting its latest fashions. Because the flyers are quite expensive to produce and mail, Sandy Lorde, Papaya marketing director, conductec a market test with 10,000 customers selected at random from the database. His plan was to use the response rates from the test to understand which RFM segments should receive a flyer. Papaya customer database provides a complete record of purchasing history for each customer. This includes how long they have been a customer, the specific clothes ordered and summary totals by category such as leisure or formal wear. Of direct relevance for RFM analysis, Papaya keeps a record of the number of months since last purchase, the total number of purchases made as well as the total dollars spent by each customer. With these three pieces of information for each customer, Sandy can easily test the RFM approach. Papaya has a total of 100,000 customers in their database. Sandy decided to rank customers into tertiles rather than quintiles. In other words, the best RFM score was 333 and the worst RFM score was 111. The Results For those customers who received a flyer, Sandy began analyzing the response rates for each RFM category. The Excel spreadsheet below shows the results of the test. Sandy has decided to mail customers whose response rate is expected to be greater than the break even. In other words, he will mail customers if the average expected profitability is equal to or greater than the mailing cost. 5 Financial Information 6 Cost of Mailing the Offer... 7 Average Selling Price paid by the customer (shipping in $1.50 $60.00 8 Average product cost incurred by Papaya:... $9.00 9 Average Shipping cost paid by Papaya $2.00 10 11 RFM Response Table - Papaya Position RFM Cell No.Maile 12 Buyers Resp.Rate 337 Financial Information $ 6 Cost of Mailing the Offer:... 7 Average Selling Price paid by the customer (shipping in 8 Average product cost incurred by Papaya:... 9 Average Shipping cost paid by Papaya 10 11 RFM Response Table - Papaya No.Maile 12 Position RFM Cell 13 1 333 220 14 2 332 240 15 3 331 231 16 4 323 228 17 5 322 326 233 209 7 321 128 8 313 392 9 232 274 10 312 300 11 231 207 12 223 392 13 311 210 14 222 350 15 133 303 16 221 392 17 213 502 18 132 349 19 212 739 20 131 435 123 272 211 305 122 390 121 500 113 539 112 837 111 730 10,000 228722222222222 18 19 20 21 23 24 25 26 29 30 31 32 21 22 23 36 24 25 38 26 27 33 34 35 1399 37 40 NIN Total Papaya + $1.50 $60.00 $9.00 $2.00 Buyers Resp.Rate 22 10.00% 15 6.25% 14 6.06% 12 5.26% 18 5.52% 7 3.35% 2.34% 2.30% 3.65% 1.67% 1.45% 1.28% 1.43% 2 0.57% 1 0.33% 2 0.51% 2 0.40% 1 0.29% 2 0.27% 0.23% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0.00% 0.12% 0.27% 10 3 9 5353 1 0 1 2 A D E 8.12% ZO 11Z 27 111 730 2 0.27% Total 10,000 1. What Response Rate should Sandy expect if he mails every customer in his 100,000 customer database? 2. What is the Break Even Response Rate? 5 7 3. If Sandy mails only those cells above the break-even response rate, the average 8 response rate he should expect is: -9 50 4. If Sandy mails everyone in the 100,000 customer base who are in RFM cells that 51 respond above the BERR, how much profit will he earn? 52 53 54 55 56 B C 11 Papaya Papaya is an online clothing retaller. New customers are acquired by advertising in specialty magazines, newspapers and TV. Papaya has maintained a detailed database about its customers containing all the relevant information about them and their purchases. Papaya wants to mail a 1-page flyer promoting its latest fashions. Because the flyers are quite expensive to produce and mail, Sandy Lorde, Papaya marketing director, conductec a market test with 10,000 customers selected at random from the database. His plan was to use the response rates from the test to understand which RFM segments should receive a flyer. Papaya customer database provides a complete record of purchasing history for each customer. This includes how long they have been a customer, the specific clothes ordered and summary totals by category such as leisure or formal wear. Of direct relevance for RFM analysis, Papaya keeps a record of the number of months since last purchase, the total number of purchases made as well as the total dollars spent by each customer. With these three pieces of information for each customer, Sandy can easily test the RFM approach. Papaya has a total of 100,000 customers in their database. Sandy decided to rank customers into tertiles rather than quintiles. In other words, the best RFM score was 333 and the worst RFM score was 111. The Results For those customers who received a flyer, Sandy began analyzing the response rates for each RFM category. The Excel spreadsheet below shows the results of the test. Sandy has decided to mail customers whose response rate is expected to be greater than the break even. In other words, he will mail customers if the average expected profitability is equal to or greater than the mailing cost. 5 Financial Information 6 Cost of Mailing the Offer... 7 Average Selling Price paid by the customer (shipping in $1.50 $60.00 8 Average product cost incurred by Papaya:... $9.00 9 Average Shipping cost paid by Papaya $2.00 10 11 RFM Response Table - Papaya Position RFM Cell No.Maile 12 Buyers Resp.Rate 337 Financial Information $ 6 Cost of Mailing the Offer:... 7 Average Selling Price paid by the customer (shipping in 8 Average product cost incurred by Papaya:... 9 Average Shipping cost paid by Papaya 10 11 RFM Response Table - Papaya No.Maile 12 Position RFM Cell 13 1 333 220 14 2 332 240 15 3 331 231 16 4 323 228 17 5 322 326 233 209 7 321 128 8 313 392 9 232 274 10 312 300 11 231 207 12 223 392 13 311 210 14 222 350 15 133 303 16 221 392 17 213 502 18 132 349 19 212 739 20 131 435 123 272 211 305 122 390 121 500 113 539 112 837 111 730 10,000 228722222222222 18 19 20 21 23 24 25 26 29 30 31 32 21 22 23 36 24 25 38 26 27 33 34 35 1399 37 40 NIN Total Papaya + $1.50 $60.00 $9.00 $2.00 Buyers Resp.Rate 22 10.00% 15 6.25% 14 6.06% 12 5.26% 18 5.52% 7 3.35% 2.34% 2.30% 3.65% 1.67% 1.45% 1.28% 1.43% 2 0.57% 1 0.33% 2 0.51% 2 0.40% 1 0.29% 2 0.27% 0.23% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0.00% 0.12% 0.27% 10 3 9 5353 1 0 1 2 A D E 8.12% ZO 11Z 27 111 730 2 0.27% Total 10,000 1. What Response Rate should Sandy expect if he mails every customer in his 100,000 customer database? 2. What is the Break Even Response Rate? 5 7 3. If Sandy mails only those cells above the break-even response rate, the average 8 response rate he should expect is: -9 50 4. If Sandy mails everyone in the 100,000 customer base who are in RFM cells that 51 respond above the BERR, how much profit will he earn? 52 53 54 55 56 B C 11