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RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

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lehoangson220801
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16 views

Tutorial 6 Slides

RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

Uploaded by

lehoangson220801
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MKTG 1011 FUNDAMENTALS OF MARKETING ANALYTICS

TUTORIAL 6: RFM ANALYSIS


TUTORIAL WORKSHOP 6
Skills developed this tutorial
• Using Excel to conduct a simple RFM analysis for the
purposes of segmentation, including

• Further developing use of pivot tables to aggregate data


• =PERCENTRANK.EXC; =SUBTOTAL
• Gaining insight from information for marketing action
RFM analysis

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RFM ANALYSIS
RECENCY • Each customer is assigned a score on each RFM
attribute
• Last purchase/interaction
• Data: Number of days since last purchase • Selecting an appropriate timeframe is important
and will vary by industry/market and situation.
FREQUENCY
• The more recent the purchase, the more
• How frequent are purchases/interactions frequently purchases occur and the higher the
• Data: Total number of purchases value of spend over time results in a higher RFM
score.
MONETARY VALUE
• Method:
• How much do they spend/interact 1. Calculate RFM values for individual customers
• Data: Total value of all purchases 2. Assign a score, (e.g. 1-5; 0-9) to each RFM
value where 5 (or 9) is the best value and 1
(or 0) is the worst.
3. Can compute a final overall score.
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RFM ANALYIS BENEFITS AND LIMITATIONS
BENEFITS LIMITATIONS
• Can be applied to different types of organisation • Not appropriate for discrete one-of purchases (e.g.
and businesses – online, retail, subscription- real estate); or where a business only sells one type of
based, non-profit. product (e.g. a single software application).
• Can be used to segment a customer base to: • Is based on descriptive analytics, therefore not useful
• Identify best customers (and other customer types, for identifying prospective customers.
e.g. ‘At-Risk’, ‘Recent Customers’, ‘Can’t lose Them’)
• Targeted direct marketing campaigns with • May focus attention on only the best customers,
customised messages ignoring potential opportunities from other segments
• Improved customer relationship management • Uses behavioural measures only and is therefore less
• Reduced marketing costs, improved ROMI and CLV useful if not combined with other segmentation
with optimised targeting
variables (demographics, psychographics), which can
• Combine with other variables and tools for further
insight. provide insight into variation.
• Can be complex to calculate without a software tool

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TOOLS FOR
RFM ANALYSIS

• Excel
• Google Data Studio
• Tableau/Power BI
• Many CRM apps
• Python and R
• Specialised software
(e.g. RetentionGrid)
Source: https://www.putler.com/rfm-analysis/#:~:text=Putler%20for%20free-,What%20is%20RFM%20Analysis%3F,how%20much%20did%20they%20buy . Viewed 28/08/22

Tableau example

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TUTORIAL
Defining the Business Need
WORKSHOP 6 • How can we better understand our customers’ buying
patterns to improve our targeting efforts?

RFM analysis

6
TUTORIAL
Excel tasks
WORKSHOP 6 You are an online retailer of a large range of homewares,
with products ranging from low value gift cards to high value
soft furnishings, and everything in between, including
cookware and dinnerware.
In order to reduce our costs while better targeting our
customers with special offers, you need to first understand
your customers’ shopping patterns. Your task is to:
RFM analysis 1. Conduct RFM analysis
2. Segment customers based on RFM results
3. Identify segments
4. Determine which segments to target
5. What might be some effective marketing actions?
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