Thoughts on RFM scoring

Abstract

for quantifying that customer behaviour. Once customers are assigned RFM behaviour scores, they can be grouped into segments and their subsequent profitability analysed. This profitability analysis then forms the basis for future customer contact frequency decisions. RFM SCORING The purpose of RFM scoring is to project future behaviour (driving better segmentation decisions). In order to allow projection, it is important to translate the customer behaviour into numbers which can be used through time. Too often, direct marketers will use static customer selections. When initially building their segmentation system, they may consider their best customers to be those who have purchased more than, say, $100. If the mailer is relatively new, this definition will degrade rapidly. The RFM BASICS Direct marketing is fundamentally the scientific control of customer acquisition and contact. The fundamental question is whether customer A merits an additional contact based on their past purchase behaviour. This question applies equally to direct mail, catalogue, phone, field or Internet contact. 1 The process of making this decision is customer segmentation. Not all customers have purchased identical amounts. Some have ordered more often, some have ordered more recently. Consequently, not all customers should be contacted with the same effort and expense. The cornerstone of direct marketing segmentation is recency, frequency and monetary values (RFM). Since direct marketing segmentation is a science, it is important to quantify customer behaviour so that the short-and long-term effect of segmentation formulae can be tested. The purpose of RFM is to provide a simple framework Abstract Direct marketing is fundamentally the scientific control of customer acquisition and contact. This paper addresses the fundamental questions of RFM (recency, frequency and monetary). Since direct marketing segmentation is a science, it is important to quantify customer behaviour so that the short-and long-term effect of the segmentation formulae can be tested. The purpose of RFM is to provide a simple framework for quantifying customer behaviour. Too often, direct marketers will use static customer selections. This paper explains clearly why RFM is a superior method for selecting customers.