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    RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

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    Tutorial 6 Slides

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    lehoangson220801
    15 views7 pages
    RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

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    Module 6 - Customers II - vUWS

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    Tutorial 6 slides

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    RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    15 views7 pages

    Tutorial 6 Slides

    Uploaded by

    lehoangson220801
    RFM analysis is a technique used to segment customers based on their Recency, Frequency, and Monetary value of purchases over a set period of time. It assigns scores to customers for each attribute, and can identify the most and least valuable segments. While it provides useful insights, it has limitations such as not capturing one-time purchases or demographic factors. For this tutorial, students will conduct RFM analysis on an online homewares retailer's transaction data to segment customers and determine which segments to target with customized marketing campaigns aimed at improving ROI.

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    MKTG 1011 FUNDAMENTALS OF MARKETING ANALYTICS

    TUTORIAL 6: RFM ANALYSIS


    TUTORIAL WORKSHOP 6
    Skills developed this tutorial
    • Using Excel to conduct a simple RFM analysis for the
    purposes of segmentation, including

    • Further developing use of pivot tables to aggregate data


    • =PERCENTRANK.EXC; =SUBTOTAL
    • Gaining insight from information for marketing action
    RFM analysis

    2
    RFM ANALYSIS
    RECENCY • Each customer is assigned a score on each RFM
    attribute
    • Last purchase/interaction
    • Data: Number of days since last purchase • Selecting an appropriate timeframe is important
    and will vary by industry/market and situation.
    FREQUENCY
    • The more recent the purchase, the more
    • How frequent are purchases/interactions frequently purchases occur and the higher the
    • Data: Total number of purchases value of spend over time results in a higher RFM
    score.
    MONETARY VALUE
    • Method:
    • How much do they spend/interact 1. Calculate RFM values for individual customers
    • Data: Total value of all purchases 2. Assign a score, (e.g. 1-5; 0-9) to each RFM
    value where 5 (or 9) is the best value and 1
    (or 0) is the worst.
    3. Can compute a final overall score.
    3
    RFM ANALYIS BENEFITS AND LIMITATIONS
    BENEFITS LIMITATIONS
    • Can be applied to different types of organisation • Not appropriate for discrete one-of purchases (e.g.
    and businesses – online, retail, subscription- real estate); or where a business only sells one type of
    based, non-profit. product (e.g. a single software application).
    • Can be used to segment a customer base to: • Is based on descriptive analytics, therefore not useful
    • Identify best customers (and other customer types, for identifying prospective customers.
    e.g. ‘At-Risk’, ‘Recent Customers’, ‘Can’t lose Them’)
    • Targeted direct marketing campaigns with • May focus attention on only the best customers,
    customised messages ignoring potential opportunities from other segments
    • Improved customer relationship management • Uses behavioural measures only and is therefore less
    • Reduced marketing costs, improved ROMI and CLV useful if not combined with other segmentation
    with optimised targeting
    variables (demographics, psychographics), which can
    • Combine with other variables and tools for further
    insight. provide insight into variation.
    • Can be complex to calculate without a software tool

    4
    TOOLS FOR
    RFM ANALYSIS

    • Excel
    • Google Data Studio
    • Tableau/Power BI
    • Many CRM apps
    • Python and R
    • Specialised software
    (e.g. RetentionGrid)
    Source: https://www.putler.com/rfm-analysis/#:~:text=Putler%20for%20free-,What%20is%20RFM%20Analysis%3F,how%20much%20did%20they%20buy . Viewed 28/08/22

    Tableau example

    5
    TUTORIAL
    Defining the Business Need
    WORKSHOP 6 • How can we better understand our customers’ buying
    patterns to improve our targeting efforts?

    RFM analysis

    6
    TUTORIAL
    Excel tasks
    WORKSHOP 6 You are an online retailer of a large range of homewares,
    with products ranging from low value gift cards to high value
    soft furnishings, and everything in between, including
    cookware and dinnerware.
    In order to reduce our costs while better targeting our
    customers with special offers, you need to first understand
    your customers’ shopping patterns. Your task is to:
    RFM analysis 1. Conduct RFM analysis
    2. Segment customers based on RFM results
    3. Identify segments
    4. Determine which segments to target
    5. What might be some effective marketing actions?
    7

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