Customer Segmentation | Market Segmentation using RFM Analysis | RACE | REVA University

In this video we discuss a customer Segmentation technique called RFM analysis.
Benefits of RFM analysis:
1. Increased customer Retention
2. Increased Response Rate
3. Increased Conversion Rate.
4. Increased Revenue

RFM Analysis

RFM analysis or Recency, Frequency, Monetary analysis is a customer segmentation technique that helps to identify the customers who are more likely to respond to promotions by grouping them into various cohorts. For example, people who visit a website regularly but do not purchase much would be a high frequency, but a low monetary visitor.

How to obtain an RFM score

In SPSS, go to the File menu, choose open, click on data, and choose the RFM customer’s option. To run an RFM analysis, choose the option direct marketing from the Analyze menu. Then, choose a technique, and understand my contacts. Choose Help and identify my best contact by RFM analysis option. If each row contains data for one customer, then choose the option-customer data. Then, fill in the transaction date of the customer, the number of transactions the customer has made, the amount of money spent, and the customer identifier.

SPSS produces an RFM analysis heat map in the output window with frequency and recency scores. From this, the frequency of customers visiting the store and the recency score can be disseminated. Higher recency scores indicate that customers who visited the shop recently. Each customer’s RFM analysis will be provided in the data window. Arrange the RFM scores in descending order. By categorizing the scores, it is possible to devise marketing strategies accordingly.

Devising marketing strategy

To devise a suitable marketing strategy, Tableau RFM Workbook can be used. It shows a heatmap and a bar chart which correspond to the number of customers for each of the orders they’ve been able to make. It has categorized customers into eight segments which are best customers, loyal customers, big spenders, recent customers, almost lost customers, lost customers lost cheap customers, and others.

The best customers can be nurtured with new programs and loyalty programs and prize incentives are not required for this set of customers. Expensive products can be marketed to the big spenders. Aggressive price incentives can be used as a marketing strategy for almost lost and lost customers.

RFM analysis helps the marketing team to identify the best overall customers, potential valuable customers, customer cohort contributing to the churn rate, customers to be retained, and the customer segments that are most likely to respond to engagement campaigns. The benefits of applying RFM analysis with marketing analytics are that it leads to increased customer retention, increased response rate, increased conversion rate, and increased revenue.

#customersegmentation #rfmanalysis #marketingstrategy

To know more about the corporate programs, please visit: https://race.reva.edu.in/

Subscribe to RACE’s YouTube channel to watch more educational videos: https://bit.ly/2Be48IS

Follow us on our social media pages for recent updates in the technology front and on our programs:

Facebook:   / revauniversityrace  
Instagram:   / racereva  
LinkedIn:   / racereva  
Twitter:   / racereva