RFM analysis

RFM analysis is a customer segmentation technique used by businesses to identify and categorize customers based on their purchasing behavior. RFM stands for Recency, Frequency, and Monetary Value, which are three key metrics used to evaluate customer activity:

1. Recency: This metric measures the time elapsed since a customer's last purchase. Customers who have made recent purchases are considered more engaged and likely to make repeat purchases.
2. Frequency: Frequency refers to the number of purchases made by a customer within a specific time period. Customers who make frequent purchases are often more loyal and valuable to a business.
3. Monetary Value: Monetary value represents the total amount of money a customer has spent on purchases. Customers with higher monetary value are typically more profitable for a business.

By analyzing these three metrics, businesses can assign a score or rank to each customer, creating segments such as "high-value," "medium-value," and "low-value" customers. This segmentation helps businesses tailor their marketing and retention strategies to target specific customer groups effectively.

RFM analysis allows businesses to identify their most valuable customers, understand their purchasing patterns, and develop targeted marketing campaigns to increase customer retention, loyalty, and profitability.