Recency, Frequency and Monetary Model

Customers can be segmented into high, medium and low with respect to their recency, frequency and monetary value.
 

• Recency: Refers to the latest customer and product interactions

  • It is tracked by tracking the date of the last purchase made by the customer

  • Recency is dependent on the product category

    • Not compatible with slow-moving categories, for example, cars and white electricity

    • The recency is very important in the FMCG industry as people buy these products regularly

  • A customer who has not been in contact with a product in the last 6 months or so is considered a sleeping customer

• Frequency: Refers to the value of customer-product interaction at any given time

  • It is tracked by counting the number of different tasks per customer in a given time

• Monetary: Refers to the amount of money a customer spends on product and product services

  • The sum of the total of all debts during the customer's time varies with the value of the customer 's cash.

There are three categories (recency, frequency and monetary) and each category is further divided into high, medium and low level.

Thus, customers can be divided into twenty-seven categories, based on the recency, visit frequency and their amount of money.

 

Through these stages, a business can understand the following questions:

1. Who are the best customers?

2. Which customers have been around for a long time?

3. Which customers have the highest value for money and should be kept?

4. Which customer segments have the lowest cost and should be ignored in future marketing campaigns?

RFM model, which allows us to understand different customer categories based on recency , frequency, and price values.

Each of the three phases (RFM) is further subdivided into upper, middle, and lower extremities, giving us a total of 27 phases. 

 

RFM allows us to understand which customers are most important to the business and which ones contribute the least to the business mindset. This knowledge allows us to develop strategies to keep customers of high value satisfied.

RFM is widely used in the fast-moving consumer goods industry and e-commerce. It allows managers responsible for product success to monitor their customer usage patterns using the latest lens, frequency and price values.

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