Scribd
Upload
27 views11 pages

RFM Analysis

RFM stands for Recency, Frequency, and Monetary Analysis, which helps companies determine customer engagement and spending patterns. It categorizes customers into groups based on their purchasing behavior to target marketing efforts effectively and increase sales. While RFM analysis offers strengths in targeted marketing and quick interpretation, it has weaknesses in potentially overlooking important variables and customers with lower scores.

Uploaded by

joshiarchita31
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
27 views11 pages

RFM Analysis

RFM stands for Recency, Frequency, and Monetary Analysis, which helps companies determine customer engagement and spending patterns. It categorizes customers into groups based on their purchasing behavior to target marketing efforts effectively and increase sales. While RFM analysis offers strengths in targeted marketing and quick interpretation, it has weaknesses in potentially overlooking important variables and customers with lower scores.

Uploaded by

joshiarchita31
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 11

What does RFM stand for?

RFM stands for Recency, Frequency &


Monetary Analysis
Recency: When did the customer make their
last purchase?
Frequency: How often does the customer
make a purchase?
Monetary: How much money does the
customer spend?

Collaboration Exercises #2, pg. 366


What is RFM Analysis?
RFM Analysis helps companies decide which
customers to give select offers and promotional
items.
It is a way for companies to find ways to
increase customer spending.
Companies can use it to target lost customers
and give them incentives to purchase items
RFM Analysis can help companies keep track
of their customers and build a relationship that
can increase sales and productivity.
It also identifies minimal losses – customers
spend low dollar amounts in small quantities
Collaboration Exercises #2, pg. 366
How does RFM Analysis work?
First, customers are divided into 5 equal
sized groups (20% in each group)
Customers are then given an R, F, & M score
Using a score of 1 to 5, 20% of the most
recent customers get an R score of 5.
The second most recent get an R score of 4
and this continues until all 5 groups receive a
score.
The 5 groups are reorganized to repeat the
procedure for the F & M scores.
Collaboration Exercises #2, pg. 366
Collaboration Exercises #2, pg. 366
Collaboration Exercises #2, pg. 366
Collaboration Exercises #2, pg. 366
Collaboration Exercises #2, pg. 366
Strengths of RFM Analysis
Companies have data that can be used for target
marketing.
Marketing budgets will be focused on customers
who are more recent, more frequent and spend
more.
Specific targeting can increase profit and reduce
costs; companies gain by not spending on
customers who will not add value
You can offer incentives to middle scoring
customers to increase their purchases
Analysis is quick and easy to interpret
Collaboration Exercises #2, pg. 366
Champions: These are best customers, who bought most recently, most
often, and are heavy spenders. They can become early adopters for new
products and will help promote your brand.

Potential Loyalists: They are recent customers with average frequency


and who spent a good amount.

New Customers : Customers who have a high overall RFM score but are
not frequent shoppers.

At Risk Customers: Customers who purchased often and spent big


amounts, but haven’t purchased recently.

Can’t Lose Them: Customers who used to visit and purchase quite often,
but haven’t been visiting recently. Bring them back with relevant promotions,
and run surveys to find out what went wrong and avoid losing them to a
competitor. Collaboration Exercises #2, pg. 366
Weaknesses of RFM Analysis
It only looks at three variables and there may be
others that are more important
Customers with low RFM scores may be
ignored, even though they may have legitimate
reasons for spending more with other vendors.
Opportunities may be missed to solidify
business relationships leading to loss of future
sales and referrals.
A customer with a low recency value and high
spending could be ranked lower than a
customer who made a recent purchase and
spends 10 times less
Collaboration Exercises #2, pg. 366
RFM or No RFM?
RFM is best suited for companies who offer a
rewards program. They are able to track
spending and can offer their high profile
clients incentives to spend more.
RFM is worst suited to companies who
provide products that are unique and will not
be purchased in large quantities.

Collaboration Exercises #2, pg. 366

You might also like