Most Direct Marketers Apply the RFM Formula to Select Customers

question 19

Essay

Most direct marketers apply the RFM formula to select customers. Explain this formula and how it is used to select customers.

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Definitions:

Real Rate of Return

The annual percentage return realized on an investment, adjusted for changes in price due to inflation or other external effects.

Portfolio Value

The total worth of all the financial investments held by an individual or institution.

Compounded Quarterly

This refers to the process of applying interest to an initial amount of money (principal) four times a year, at the end of each quarter.

Economically Equivalent

Refers to different financial transactions or investments that have the same economic effect or value, despite differing in structure or form.