The RFM model is a very innovative and standard idea that is adopted by most businesses that really need to grow. RFM stands for Recency, Frequency and Monetary. You need to have most accurate data to determine your market strategy. Ideally 1-2 years data is considered as optimum for deriving your approach. Let’s assume that you need to define the RFM model for your business.
You have the transaction data for the last 2 years. Now recency defines when was the last time that a purchase was made by a customer from your store. You can classify the customers based on their most recent purchases. This would mean the latest customer comes at the top of your recency list. The 2nd parameter is the Frequency of transactions. Who all have purchased most number of times from your store? Your 2 years data will give you the most accurate list of people who buy most often from your stores. The 3rd parameter is the monetary value of the transactions done by each customer at your store. So, if someone has spent more money than the rest then he comes automatically to the top of your ‘monetary’ list.
RFM requires you to assign a weight to each of these parameters and then calculate your most profitable, medium profitable and least profitable customers. Based on the group of each customer you will need to set a marketing strategy for them. For instance, let’s say one of your customers has done a very recent transaction of ‘Toshiba laptop’ from your stores. He might need to have a DVD player, or a laptop mouse or even a multi-media speaker. If you send such a customer an email consisting of your deals on speakers or DVD players then it is highly likely that the customer will come back to your store. So the marketing strategy for such a customer would be to send a mail on his next probably likings.
You will really need to define your marketing strategy based on the RFM score and relative to a consumer. If you use RFM effectively then most likely you will be able to drive better revenue and profit margins.
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You have the transaction data for the last 2 years. Now recency defines when was the last time that a purchase was made by a customer from your store. You can classify the customers based on their most recent purchases. This would mean the latest customer comes at the top of your recency list. The 2nd parameter is the Frequency of transactions. Who all have purchased most number of times from your store? Your 2 years data will give you the most accurate list of people who buy most often from your stores. The 3rd parameter is the monetary value of the transactions done by each customer at your store. So, if someone has spent more money than the rest then he comes automatically to the top of your ‘monetary’ list.
RFM requires you to assign a weight to each of these parameters and then calculate your most profitable, medium profitable and least profitable customers. Based on the group of each customer you will need to set a marketing strategy for them. For instance, let’s say one of your customers has done a very recent transaction of ‘Toshiba laptop’ from your stores. He might need to have a DVD player, or a laptop mouse or even a multi-media speaker. If you send such a customer an email consisting of your deals on speakers or DVD players then it is highly likely that the customer will come back to your store. So the marketing strategy for such a customer would be to send a mail on his next probably likings.
You will really need to define your marketing strategy based on the RFM score and relative to a consumer. If you use RFM effectively then most likely you will be able to drive better revenue and profit margins.
http://expertscolumn.com/content/how-save-electricity-and-reduce-your-bills
http://expertscolumn.com/content/does-it-make-sense-buy-house-mumbai-today
http://expertscolumn.com/content/slow-growth-infrastructure-mumbai
http://expertscolumn.com/content/back-travelling-my-train
http://expertscolumn.com/content/my-200th-column-expertscolum-and-expedition-continues
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