RFM stands for Recency, Frequency, Monetary, a concept widely used in marketing and customer relationship management (CRM). This analytical technique helps businesses identify and segment customers based on their purchasing behavior. RFM analysis provides insights into customer value and helps optimize marketing strategies and promotions.
Recency refers to the timeframe since a customer's last purchase. It measures how recently the customer interacted with the company. The more recent the purchase, the higher the recency score.
Frequency measures the number of times a customer has made a purchase within a specified period. It captures the level of engagement of the customer with a company's product or service. A higher frequency score indicates a more active and loyal customer.
Monetary refers to the total amount of money a customer has spent during a particular period. It signifies the value or importance of a customer based on their spending. Customers who spend more will have a higher monetary score.
By combining these three dimensions, businesses can generate an RFM score for each customer. This score becomes a powerful tool for segmenting customers into different groups, such as high-value, low-value, loyal, or dormant customers. Companies can then implement targeted marketing strategies, personalized promotions, and customer retention efforts based on each segment's characteristics. RFM analysis enables businesses to better understand their customer base, make data-driven decisions, and improve the effectiveness of their marketing initiatives.
