December 8, 2006

RFM vs. Predictive Modeling

RFM has long been a measure of customer value. Many nonprofits are using it to describe prospect or donor value. It can be an effective measure for a segment of the donor pool. I have even used the measure as a dependent variable in a linear model to understand the factors and predict future value. In this article from DM News, Melissa Campanelli compares RFM to predictive modeling in a back-to-school campaign.

"Names selected using predictive modeling had a four times higher average monthly spending rate than people selected with RFM, and a three times higher purchase rate. Also, consumers selected with predictive modeling spent 2.5 times more per direct mail piece than those chosen through RFM. "

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