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108 Data Analysis
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108.30.10.20.20.10.10 Data Analysis - Segments - RFM - How to segment RFM

RFM - How to segment RFM

Step 1

To implement this model you must have RFM information on each individual customer like this:

customer_id     recency_days    frequency_times     monetary_clv
1               3               6                   540
2               6               10                  940
3               45              1                   30
4               21              2                   64
5               14              4                   169

Step 2

Then, for each of R/F/M sort the list in order by score and give each customer_id a score from 1-5.

Data note: In this example there are only 5 records, so each customer_id gets a unique score, but in most cases you will divide the groups evenly. E.g. if there are 100 customers, there will be 20 of them with each score.

R (ascending order)

customer_id     r_value     r_score
1               3           5
2               6           4
5               14          3
4               21          2
3               45          1

F (descending order)

customer_id     f_value     f_score
2               10          5
1               6           4
5               4           3
4               2           2
3               1           1

M (descending order)

customer_id     m_value     m_score
2               940         5
1               540         4
5               169         3
4               64          2
3               30          1

Step 3

Put r_score on the x-axis. Put AVG(f_score + m_score) on y-axis.

In most cases, it seems that R & F are used to segment customers. In this case, as in the reference (1) I'm averaging (F+M)/2 because frequency and monetary value are closely related.

customer_id     x_value     y_value
[1]             5           4
[2]             4           5
[3]             1           1
[4]             2           2
[5]             3           3


F/M

5  |              [2]
   |
4  |                    [1]
   |
3  |          [5]
   |
2  |     [4]
   |
1  |[3]
   -------------------------
     1    2    3    4    5      R

Source:
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