2010.06.24 16:57:27

John McDaniel

A question about an insurance company’s “free service” on the optcom list prompted a discussion about RFM market segmentation.  Since many questions were raised about RFM, I decided to draft a quick blog primer on the subject.  At the outset, I want to be clear that I believe this approach can have value in market segmentation for an optometric or other health care practice, but the logistics are a little daunting.  I will address a few of the issues I’ve encountered while attempting to implement RFM in optometric practice at the end of this blog entry.

What is RFM Market Segmentation?
The concept of RFM segmentation is not new and is rather straight forward.  There are three premises the concept is based on:

1.  Customers who have purchased recently (R) are more likely to purchase again, when compared to customers who have not purchased for a long time.

2.  Customers who purchase frequently (F) are more likely to purchase again when compared to customers who have purchased just once or twice before.

3.  Customers who have spent the most money (M) in total are more likely to purchase again.

These concepts are rather obvious.  But over time, the power of this notion of recency, frequency, and monetary level has been expanded into less obvious situations.  For example, even for someone who has never been your customer, you can predict the likelihood of them becoming a customer.  Assessing the recency of their visits to your website, the frequency of these visits, and money spent (even if it is zero) during those visits helps you predict the likelihood of them becoming your customer in the future.

In fact, the model has been used exclusively for non-customers where the monetary value is not utilized (since all non-customers have all spent zero money, the factor is of no value in rating the prospects).  This two factor, R and F, approach can be very powerful when determining which prospects should have marketing resources allocated toward attracting them.

The core idea of RFM (or RF) is to score customers/prospects on R, F, and M.  These scores are then compiled into a single value that is used to determine the relative worthiness of expending marketing resources on each individual customer/prospect.  There are many variations in scoring systems, and many specific corrections and adjustments that can be made to the process depending upon industry.  You will need to determine a cutoff score, then only allocate marketing resources to attract those with that score or higher.  This makes your marketing efforts both more efficient and effective.

What are the Pitfalls of RFM in Health Care Marketing?

Effective RFM needs one thing…data.  Lots and lots of data on who is accessing your website, when, and how often…who is calling your office, when, and how often…who is spending what, when, and how often…who is viewing your Facebook page, when, and how often…etc.  You get the idea.  The problem in optometric practices is that much of this data is either not collected at all, or it is collected in a form that is rather difficult to access and study.  If there is no data, there is no use for RFM.

Assuming you have enough accessible data, here is something else to consider: is the total market big enough to justify the analysis to further segment it?  An example may help explain this.  Let’s say a practice is one of two optometric offices in a smallish city of 50K people.  Assuming that the practice has about 10K active/semi-active patient files, that means 40K of the city's residents are not patients, or have not been patients for several years.  You also have to factor in the fact that the other practice will account for some of the 40K remaining people.  In case, let’s say that other practice will account for 10K folks.  Now, ask yourself, is it worth collecting the RFM data needed to segment that remaining 30K people to determine who you are going to prioritize your marketing efforts to attract?  Maybe.  Maybe not.  It depends upon what the marketing efforts are.  If it is a mass mailing effort that costs $0.50 a piece, you might be able to eliminate 10K from the mailing list.  That will save you $5K in costs.  But, how much will it cost you to access and analyze the RFM data and to score it?  Probably more than $5K.  Hopefully, you can see how this approach makes sense for more expensive per person efforts, but not for less expensive per person efforts.  In most optometric offices, the marketing activities are in the “less expensive” category.

As I said at the beginning of this blog, I do believe a form of RFM is valuable in the business of optometric market segmentation.  To be successful, the process requires a good data collection and retrieval system.  It also, likely, needs to focus on internal customers where that data collection is possible, at a very low cost.  Finally, the scoring system must be well crafted, weighted, and able to be incorporated into a solid practice management system (electronic PMS).  In other words, it has be easy to do and easy to access.  If it is not easy, it will never be used.

A final note – a large number of details have been omitted in this blog on RFM market segmentation.  There are text books dedicated to RFM and that level of detail is well beyond the scope of this blog.

Le Meas, 

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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RFM | marketing | market segementation

2009.11.27 21:46:46

John McDaniel

The power of touch is immense and yet often ignored by most owners of optical businesses. If you sell tangible product such as frames or contact lenses you need to get people to touch them. Why? It increases what social psychologists call the “sense of ownership” of whatever item is being touched. Is this psychological “trick” worth the effort to employ it? Undoubtedly it is worth doing because we’ve seen clients improve their tangible goods sales number by over a third or more by employing just this approach.

Break the Glass Barriers
Are your frames displayed behind glass? No matter the reason you chose to use this display technique, you are losing sales because of it. The most common reasons cited for the glassed displays are:

• It is a classy, high-end display approach that increases the perceived value of what is behind the glass, or
• It reduces theft and protects my capital investment in inventory

Think about these two reasons for a few minutes. I’ll wait for you…go ahead…have you figured out the problem yet? Of course you have; all of my blog readers are geniuses! The obvious incompatibility of these reasons means one of them has to right and one has to be wrong. There is not a clear cut, always correct answer, but I can safely say that over 90% of the time the right one is that it reduces theft. Well, maybe. At the very least it gives the customers the impression that you are attempting to reduce theft. That means most of the time the perception of the customer is “they must have a lot of frames stolen” and not “these must be high end frames.”

Get your frames out from behind the glass and employ other methods for theft reduction. You need people to touch and try on frames to be able to sell as many as you can. Other research shows that you want to get customers to look at themselves in a mirror in addition to touching to further increase their sense of ownership of the product. That includes contact lenses. Even though they can’t see the product they can see the benefit of the product – clear vision without glasses.

The Contact Lens Test Drive
Just as it is important to get patients to touch and see themselves in frames, people need to touch, experience, and visualize themselves during the contact lens experience. The contact lens test drive puts patients in lenses, without a complete fitting, to have a risk free opportunity to experience life in contact lenses. Whether doing this while in the exam chair or during special days/times in the office, you will see a jump in the number of contact lens wearing patients in the practice. This approach is especially useful for “specialty” lenses such as multifocal or toric designs.

“What Do I Do With the Dozen or so AR Displays in My Backroom?”
Um…use them. Get patients to touch them and handle them. Get them to feel the difference between CR 39 and a high index material. Get them to see how a sample of Transitions works in the sunlight. Have them feel the weight difference between lighter lens materials and heavier ones. This tactile approach is the best method (no, I am not over stating this) for handling objections to lens enhancements and they are frustratingly under used.

Le Meas,

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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marketing | Consumer behavior | touch | product marketing | product sales

2009.10.23 01:26:25

John McDaniel

• Destroy all signature stamps and vow to never use them again
• Limit check writing authority to the owner(s)
• Limit depositing authority of staff and divide the duty between multiple employees with built in checks and balances
• Hire a fake consultant to review your processes to shake the tree; if something shakes out hire Waugoo Consulting Group to investigate the problems and create a plan to reduce your exposure to employee theft
• Computerize your inventory system and take physical inventory more often than annually
• Consider employing a video security system
• Conduct semi-annual vendor checks
• Secret shop the practice with marked cash
• Password protect the owners computer
• Utilize a day sheet
• Protect lines of credit and credit card access
• Make sure every patient transaction gets a receipt

This blog will continue to present steps that can help reduce your risk of the very real problem of employee theft.  As I’ve said before, keep in mind that each tactic works on its own but is exponentially more effective when paired with an overall strategy employing multiple approaches.  (The cut and paste function is a great time saver – can you tell?)

Hire an Actual Consultant
You didn’t think that I would skip this one, did you?  The single best way to protect your business is to have an outside expert create a long term theft prevention strategy that you agree to stick to (just like in patient care, compliance is the single biggest hindrance to successful consultation results.)  Consultants have many advantages over attempting to do these things on your own.  I can not speak to other experts fees but at the time of publication Waugoo Consulting Groups fees for theft prevention consults are $4989.  This includes an in depth analysis of current data to attempt to determine if  theft is occurring now, the development of a comprehensive plan to prevent and identify theft in the future, and a review approximately a year later to fine tune the processes put in place.  How many stolen frames, embezzled monies, and hijacked lines of credit will it take to cost you over $5,000 in your business?  It is a smart decision in most cases to hire outside help.  One other way consultants can help is in providing audits to identify trends, practices, or other data that suggest increased risk or likelihood of theft.  These audits are not as comprehensive as a full consult but they provide the business that creates their own theft prevention strategies an opportunity to evaluate the results at a lower fee.  These audits range from $1489 to $2989 through Waugoo.  The audits also put real fear into the minds of employees that might be tempted to steal from your business.  In my experience, the single best way to reduce theft is to create a realistic fear of being caught.  Outside experts provide the greatest fear for the buck.

Routine Critical Analysis of Practice Financial Results
You should be doing this anyway.  We can argue the merits of monthly vs. quarterly analysis but that is not important with respect to theft analysis.  The key here is to search for trends and unanticipated changes in trends.  Keep in mind that doing this will have many benefits above and beyond the theft issue.

Reduce Your Inventory Levels
I routinely see practices that have 1200 frames in their optical (along with 300 strategically hidden in the overstock cabinet.)  The more inventory you have the greater the opportunity for employees and patients to steal from you.  This strategy is so simple it escapes the attention of most practice owners.  If you have less stuff your exposure to theft is less.  There are numerous other advantages to lower levels of inventory including increased ease in taking routine inventories and improved business liquidity.

Whew.  I never expected this theft blog “thing” to become a six part series.  I’ve received numerous comments and questions from readers along the way that helped shaped these blogs and I want to thank you for your contributions.  Now on to the next business topic…

Le Meas,

John G. McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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employee theft | theft prevention | loss prevention | embelement asset protection

2009.10.16 01:33:42

John McDaniel

So far I’ve presented six strategies for dealing with the problem of employee theft:

• Destroy all signature stamps and vow to never use them again
• Limit check writing authority to the owner(s)
• Limit depositing authority of staff and divide the duty between multiple employees with built in checks and balances
• Hire a fake consultant to review your processes to shake the tree; if something shakes out hire Waugoo Consulting Group to investigate the problems and create a plan to reduce your exposure to employee theft
• Computerize your inventory system and take physical inventory more often than annually
• Consider employing a video security system

This blog will continue to present steps that can help reduce your risk of the very real problem of employee theft.  As I’ve said before, keep in mind that each tactic works on its own but is exponentially more effective when paired with an overall strategy employing multiple approaches.  (Haven’t I said this before?)

Vendor Checks
Conduct semi-annual vendor checks.  Maintain a list of all vendors and personally contact them twice a year.  Ask for a statement to be sent to you personally (at home, possibly) that summarizes the past 6 months purchases and returns.  This accomplishes several things.  First, it prevents (or severely limits) an employees ability to create a shadow organization (i.e. a vendor in name only) commonly used to funnel practice funds while maintaining a proper and clean book record.  Second, this allows for a means of comparing the vendors reports of how much you should have spent (and been credited) over the time period so you can compare with what was actually spent.

Secret Shop with Cash
Secret shop the practice with marked cash to see where it goes.  The long term approach to this strategy has you using different amounts at different times with different staffers.  Cash transactions are the most common way (in my experience) for employees to steal from the practice.  The patient pays for their contact lens supply with $300 in cash and employee never makes a bill and never records the transaction.  There is no record of the purchase on the books.  Embezzlers vary in the amounts of cash transactions they prefer to target.  Some only like the “little” stuff and others don’t waste their time unless it is over a certain dollar amount.  Test all amounts on all staff over time.  This goes without writing (but since I am writing it that means it has happened before) but don’t send the same person in over and over to be the secret shopper.  Ideally, you want to recruit different people each time.

Password Protect the Owners Computer
Finally, password protect the owners computer.  Many people are guilty of poor use of this most basic safeguard; don’t be one of those people.  Also ask a family member to try and figure out the password and/or find where you store passwords for when you forget them.  The password is only as good as its ability to remain secret and unfound.  Finally, don’t make the mistake of giving this password to the staff.  Nothing can be more self defeating than this mistake.

Le Meas,

John G. McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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preventing embezzlement | asset protection | staff management | loss prevention | employee theft

2009.10.07 21:23:40

John McDaniel

It's been a busy, busy couple of months.  That's my excuse for the "vanishing" blog that some of you have noticed.  I will be getting back to the theft blogs and other direct business topics and, yes, even some more humor entries soon but as something to hold you over I wanted to make your life easier and better.

How can I do that?  How about help you reduce the number of annoyances that you deal with weekly, such as unwanted credit card offers, junk mail, phone books, etc. Below are some methods to reduce these dramatically.

Go to www.yellowpagesgoesgreen.org to opt out of the delivery of the yellow and/or white pages.

To cut down on junk mail and catalogs visit www.dmachoice.org and opt out there.

Preapproved credit card offers are especially annoying to me.  You shouldn't just throw them away because of the real risk of identity theft.  That means you have to open them, remove the fake card from the offer, get rid of that sticky silicone, and then shred the offer itself to protect yourself.  Instead, go to www.optoutprescreen.com to opt out.

Buying stuff on the internet and needing an e-mail address to do it?  Worried about security or spam as a result?  Try guerrillamail.com to get a free temporary e-mail address to use.

Le Meas,

John G. McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
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financial advice | personal help | making life easier