RFM is a method used for analyzing customer behavior and defining value based market segments. It is commonly used in database marketing and direct marketing.
– RFM stands for : Recency, frequency, monetary
– RFM is a most commonly used method for analyzing customer behavior and defining market segments.
– Has been used for over 50 years by direct marketers to target a subset of their customers, save mailing costs, and improve profits.
– Based on three simple customer attributes:
• Recency of Purchase: When was the last customer interaction?
• Frequency of purchase: How frequent was the customer in its interactions with the business?
• Monetary value of Purchase: How much the customer is spending?
– Each one of these variables is having relationship with response to an offer
– Customers who have recently made a purchase are likely to purchase again.
– Customers who make frequent purchases are likely to purchase again.
– Customers who have spent a lot of money in the past are likely to spend more money now
– The three attributes: Recency, Frequency, Monetary are easy to comprehend and quite powerful in their predictive ability
RFM Methodology
