WhitePapers

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.

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