Database Reference
In-Depth Information
The weights assigned to each RFM component designate its significance
and can be specified by the analysts according to prior knowledge of the
particular industry and enterprise.
As an example let us consider the case of the customer previously
assigned to RFM cell 351. With equal weights of 10.0 in all the RFM
individual components, this customer would receive a score of 90, in a scale
ranging from 30 to 150. These scores can be rescaled to the 0-1 range
according to the following formula:
RFM score minimum RFM score
=
maximum RFM score minimum RFM score .
Rescaled RFM score
Unlike the RFM cells, the continuous form of the RFM unifies the
information in the relevant components without preserving their distinct
information. Nevertheless, this can prove to be simpler and more convenient
since marketers will have to monitor just a single scale measurement instead
of deciphering a rather complex combination of numbers.
THE RFM SEGMENTATION PROCEDURE
Since the goal was to investigate current and not past behaviors, the RFM analysis
was based on purchase records of the last six months. The procedure involved the
calculation of the RFM components and the assignment of customers to RFM
segments. The implementation steps for the calculation of the RFM components
and cells are briefly as follows:
1. Data acquisition: Transactional data of the last six months were retrieved,
audited, cleaned, and prepared for subsequent operations. The organization's
loyalty program made it possible to link customers to specific transactions and
to track each customer's purchase trail.
2. Selection of the population to be segmented: Only active customers were
included in the RFM segmentation. Inactive customers with no purchases
during the last six months were identified and a relevant list was constructed
and sent to the marketing department for inclusion in upcoming retention and
reactivation campaigns.
Furthermore, new customers with a relationship with the retail enterprise
of less than three months were also excluded from the RFM analysis since it
was considered that their relationship with the enterprise was relatively short
and the available data were not sufficient to outline a reliable purchase profile.
Finally, after preliminary data analysis and discussions with the marketers
of the organization, customers with total purchases lower than a specific
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