RFM analysis is a method of customer analysis that deciphers data from three indicators: customer purchase amount, purchase frequency, and last purchase date.
RFM analysis has more indicators for customer analysis than decile analysis, which uses only “purchase amount” as an indicator, and allows for more detailed promotional measures. Therefore, it can be used when you want to accurately understand the actual situation of your customers. Data on purchase amount alone can only measure a customer’s purchasing power, but with data on purchase frequency and last purchase date, it is possible to analyze not only good customers but also new customers, dormant customers, defective customers, etc. It is possible to develop strategies that are tailored to customer
needs
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Specific examples of RFM analysis
The flow of RFM analysis is as follows.
1. Prepare “R: Last purchase date,” “F: Purchase frequency,” and “M: Purchase amount” data for all customers or the customers you want to analyze.
2. Evaluate customer purchasing behavior on a five-level scale based on three indicators and divide customers according to their evaluation.
3. Develop different promotional measures for each group
Based on the RFM evaluation value, the following considerations can be made.
When RFM=5:5:5
They received the highest ratings in all three indicators, which shows that they are truly customers who can be called “regular customers.”
When RFM=3:3:3
The evaluation is average in all three indicators, and the reality is that there are many people in the middle class. You will need to find customers who can become good customers from among these and develop a strategy to get closer to a 5:5:5 ratio.
When RFM=5:1:1
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The last purchase date (R) is high and the other metrics are low, indicating that you are a new customer. In order to increase the frequency and amount of purchases, you should use direct mail and coupon distribution to encourage repeat customers and increase the customer’s desire to purchase.
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