Information about Rfm
RFM is a method used for analyzing customer behavior and defining market segments. It is commonly used in database marketing and direct marketing and has received particular attention in retail.
RFM stands for
Once each of the attributes has appropriate categories defined, segments are created from the intersection of the values. If there were three categories for each attribute, then the resulting matrix would have twenty-seven possible combinations (one well-known commercial approach uses five bins per attributes, which yields 125 segments). Companies may also decide to collapse certain subsegments, if the gradations appear too small to be useful. The resulting segments can be ordered from most valuable (highest recency, frequency, and value) to least valuable (lowest recency, frequency, and marketing). Identifying the most valuable RFM segments can capitalize on chance relationships in the data used for this analysis. For this reason, it is highly recommended that another set of data be used to validate the results of the RFM segmentation process.
Advocates of this technique point out that it has the virtue of simplicity: no specialized statistical software is required, and the results are readily understood by business people. In the absence of other targeting techniques, it can provide a lift in response rates for promotions.
RFM stands for
- Recency - When was the last order?
- Frequency - How many orders have they placed with us?
- Monetary Value - What is the value of their orders?
Once each of the attributes has appropriate categories defined, segments are created from the intersection of the values. If there were three categories for each attribute, then the resulting matrix would have twenty-seven possible combinations (one well-known commercial approach uses five bins per attributes, which yields 125 segments). Companies may also decide to collapse certain subsegments, if the gradations appear too small to be useful. The resulting segments can be ordered from most valuable (highest recency, frequency, and value) to least valuable (lowest recency, frequency, and marketing). Identifying the most valuable RFM segments can capitalize on chance relationships in the data used for this analysis. For this reason, it is highly recommended that another set of data be used to validate the results of the RFM segmentation process.
Advocates of this technique point out that it has the virtue of simplicity: no specialized statistical software is required, and the results are readily understood by business people. In the absence of other targeting techniques, it can provide a lift in response rates for promotions.
Criticism
Critics take issue on several points. First, the method is descriptive only, and does not provide a mechanism to forecast behavior as a predictive model might. Second, when used to target customers for promotion, it assumes that customers are likely to continue behaving in the same manner. Finally, when used as the primary targeting method, it may lead to overmarketing to the most attractive RFM segments and to neglect of other segments that would be profitable if developed properly.Variations
RFD - Recency, Frequency, Duration is a modified version of RFM analysis that can be used to analyze consumer behavior of viewership/readership/surfing oriented business products. (For example, amount of time spent by surfers on Wikipedia) customer is someone who makes use of or receives the products or services of an individual or organization. The word historically derives from "custom," meaning "habit"; a customer was someone who frequented a particular shop, who made it a habit to purchase goods there, and with
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A Market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.
Market segmentation
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Market segmentation
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Database marketing is a form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes.
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Retailing consists of the sale of goods or merchandise, from a fixed location such as a department store or kiosk, in small or individual lots for direct consumption by the purchaser.[1] Retailing may include subordinated services, such as delivery.
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CHAID is a type of decision tree technique. It was published in 1980 by Gordon V. Kass. It can be used for prediction (like regression analysis) or for detection of interaction between variables.
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