Estimating customer lifetime value based on RFM analysis of customer purchase behavior: Case study

Mahboubeh Khajvand · Kiyana Zolfaghar · Sarah Ashoori · Somayeh Alizadeh

182 citations0/0 files storedProcedia Computer Science

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Customer churn and segmentation Customer Service Quality and Loyalty Consumer Market Behavior and Pricing

Abstract

Since the increased importance is placed on customer equity in today’s business environment, many firms are focusing on the notion of customer loyalty and profitability to increasing market share. Building successful customer relationship management (CRM), a firm starts from identifying customers’ true value and loyalty since customer value can provide basic information to deploy more targeted and personalized marketing. In this paper, customer lifetime value (CLV) is used to customer segmentation of a health and beauty company. Two approaches are used: in the first approach, RFM (Recency, Frequency, and Monetary) marketing analysis method is used in order to segmentation of customers and in the second approach, the proposed extended RFM analysis method with one additional parameter—called Count Item—is used. Comparing results of these approaches, shows that adding count Item as a new parameter to RFM method makes no difference to clustering result, so CLV is calculated based on weighted RFM method for each segment. The results of calculated CLV for different segments can be used to explain marketing and sales strategies by the company.

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References

2003Return on Marketing: Using Customer Equity to Focus Marketing Strategy 2004Balancing Acquisition and Retention Resources to Maximize Customer Profitability 2006Modeling Customer Lifetime Value 1999Is your company ready for one-to-one marketing?2003Customers as assets 1995Optimal Selection for Direct Mail 2008Classifying the segmentation of customer value via RFM model and RS theory 1975Successful direct marketing methods

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