*NCDM: Fingerhut's Database Marketing Program Brings Impressive Results
MSO is a system of mathematical models that finds the optimal mail-stream to assign to each existing customer, Hanley said. With this information in hand, Fingerhut can get the right catalog in the right customer's hands at any point in time. It is also a complex decision tool that allows the company to pinpoint which catalog will generate the most incremental revenue for each customer.
Fingerhut decided to use the MSO approach in the mid-1990s, when it found that its active customers were getting most of the 100 catalogs it was sending out.
"These catalogs had a significant amount of redundant merchandise and that's where the challenge came in," Hanley said. "There were certain catalogs that had, in some cases, 50 percent of the merchandise in a catalog that was mailed in the same week to the same customer. We had a saturation problem."
MSO addresses the saturation-levels of its current customers in an effort to increase profits. It is based on the traditional, promotional-scoring model, but updated with saturation information, Hanley said.
Ultimately, it allows Fingerhut to give customers the mail they want, when they want it, as opposed to receiving mailings that look like unsolicited offers, which they are more likely to toss out.
"There's a reason why customers call much of what they receive in their mail boxes junk mail," Haley said. "MSO, however, allows us to put relevant catalogs in front of customers so that they don't think of them as junk mail."
The MSO program, which was completed in 1998, was created with Torrent Systems, Cambridge, MA, a database marketing software vendor, and IBM's business intelligence division, Armonk, NY. Torrent brought customer data expertise and a sophisticated database marketing system to the application, as well as the ability to execute it. IBM brought, among other things, optimization techniques, Hanley said.