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RFM Analysis

This document discusses using RFM (recency, frequency, monetary) analysis to better segment customers. RFM analysis examines how recently a customer has purchased, how often they purchase, and how much they spend. It helps identify the most profitable customer groups to target campaigns towards. Customers who recently purchased, purchase more frequently, or spend more are more likely to purchase again. RFM analysis calculates scores in each category and segments customers into groups from least engaged to premium based on their combined score. This segmentation can then be used to sharpen targeting strategies and understand customer migration over time.

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65 views2 pages

RFM Analysis

This document discusses using RFM (recency, frequency, monetary) analysis to better segment customers. RFM analysis examines how recently a customer has purchased, how often they purchase, and how much they spend. It helps identify the most profitable customer groups to target campaigns towards. Customers who recently purchased, purchase more frequently, or spend more are more likely to purchase again. RFM analysis calculates scores in each category and segments customers into groups from least engaged to premium based on their combined score. This segmentation can then be used to sharpen targeting strategies and understand customer migration over time.

Uploaded by

kris
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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RFM ANALYSIS

In designing a better campaign, we should think more about smart targeting to predict the interests
of visitors and target them with relevant campaign content and offers at optimal times. Instead of
reaching out to 100% of the audience, we need to identify and target only specific customer groups
that will turn out to be most profitable for the business. Understand the customers a little better and
sent them more relevant campaigns. This can be done by RFM analysis. Better Customer
Segmentation using RFM approach helps to identify right target. RFM (recency, frequency,
monetary) analysis is a marketing technique used to determine quantitatively which customers are
the best ones by examining how recently a customer has purchased (recency), how often they
purchase (frequency), and how much the customer spends (monetary). RFM analysis is based on the
marketing axiom that "80% of your business comes from 20% of your customers". RFM uses
transaction/purchase behaviour data to segment a pool of customers. The resulting customer
segments can be ordered from most valuable to least valuable.

Fundamental thoughts/assumptions behind RFM approach

1. Customers who have purchased from you recently are more likely to buy from you again than
customers who you haven’t seen for a while.

2. Customers who buy from you more often are more likely to buy again than customers who buy
infrequently.

3. Customers who spend more are more likely to buy again than customers who spend less.

RFM Score

Recency (R) Score- -Rank customer based on Recency values -Lower the Recency better the
customer Frequency

(F) Score- -Rank customer based on transaction frequency values -Higher the frequency better the
customer Monetary

(M) Score- -Rank customer based on total transaction values (money spend) -Higher the monetary
value better the customer

Rank Category Name

1 Least Engaged

2 Occasional Spenders

3 Low Spending Loyals

4 High Spending Loyals

5 Premium
• Segments can be defined based on a combined score maintaining importance of each component
(R,F,M).

• Composite RFM Score: RFM or (R+F+M)

• After finding the RFM score and its Composite score, we have found the number of customers who
are least engaged to premium customers from Year 1 and Year 2

Uses of RFM Segmentation

• Identify valued customers

• Sharpen targeting strategy

• Understand Customer migration over time

1. Problem statement-

2. Solution Approach- Graphs(FLOW CHART), Cross Sell /upsell flow chart

3. Data Pre-processing( WHICH FILES HAVE BEEN MERGED TO GET EACH DATA) (HOW DID WE
MERGE)

4. EDA( COMMODITIES PERFORMANCES/ brand performances/ Store performances)

5. RFM-(SJDJD)

6. MBA-

7. Promo STARTEGY- EDA (THAT 8 GRAPHS)-

8. Recommendations

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