305,098,161

Customers Analyzed YTD

7,365,788,776

Transactions Analyzed YTD

$274,232,344,662

Customer Purchases Analyzed YTD

RFM vs. Loyalty Builders' Modeling


A Loyalty Builders White Paper Comparing Our Technology to a Typical RFM Analysis

How RFM Works

Traditional database marketing is usually based on a methodology called RFM -- short for Recency, Frequency and Monetary value. Recency is the length of time since a customer's last purchase, Frequency measures the number of times a customer has made purchases and Monetary value is the dollar amount of those purchases. Database marketers use various combinations of these three numbers to score a customer, A weakness of the RFM approach is apparent in the following table describing the purchasing histories of two customers.

Customer
Jan
July
Sep
Dec
Jan
Customer X
$1500
$1000
$500
$200
$100
Customer Y
$100
$200
$500
$1000
$1500

Table 1

Both customers have identical R, F, and M scores and yet the interpretation of those values suggests very different futures for the two. Other problems with the RFM approach appear when they are combined to form a single score.

Download to read more


Already Registered with us?

Submit email for access

   

Loyalty Builders offers our white papers free of charge to individuals interested in existing customer marketing. Please complete the sign up form and you will receive an email with instant access to our white paper library.