Exploring RFM
RFM is a customer segmentation technique that uses recency, frequency, and monetary value to divide customers into groups. RFM is a popular technique because it is easy to calculate and understand. RFM is a good starting point for customer segmentation. It is used to identify clusters of customers based on how much time has passed since their last purchase (recency), how often they purchase (frequency), and how much they spend (monetary). Its uses include the following:
- Segmentation and targeting
- Customer cohort analysis
- Customer lifetime value analysis
- Resource allocation
RFM stands as one of the earliest analytical methodologies in cohort analysis, originating from direct mail marketing strategies in 1995 by Bult and Wansbeek, thus highlighting its longstanding relevance in the field. The technique only needs the most available transactional data, as well as a very simple analysis. The underlying idea is that customers who have purchased more...
