Use of the Method RFM Segmentation of Customers for Marketing Purposes. Exploration on the Basis of Data from the Trading Company

Abstract

The paper presents the problem of identifying groups of customers for marketing purposes based on their purchasing activity. We discuss the problem of highlighting key customers and the expectations of the customer life cycle using the RFM method (Recency, Frequency, Money). Classification results were compared with each other based on Customer Profitability (CP) calculated by cost sharing using the ABC method. The experience of companies is that in the early stages of cooperation, customers show a quite considerable unprofitability. The study involved the purchasing activity of more than 1000 customers of trading companies. It included behavioral parameters: the period since the last purchase (Recency), purchase frequency (Frequency) and the level of spending (Money) and the overall rate of RFM analyzed for each customer. Then, clients were assigned to specific groups and compared with the profitability of the group and the average profitability of clients in the group. Segmentation was supplemented by an analysis of the number of transactions and sales in established classes of customers. Presented analyses were performed using actual transaction data of the 12-month period, obtained by a distribution channel website. The authors formulated a way of interpreting the data and recommendations for marketing activities with a focus on groups that emerged from the customers.