CRM refers to Customer Relationship Management. It is a process that addresses all aspects of identifying customers, creating customer knowledge, building customer relationships and shaping their perceptions of the organization and its products. CRM aims to develop and maintain long-term relationships with strategically significant customers through an IT-enabled business strategy that optimizes profitability, revenue and customer satisfaction. Successful CRM requires gathering customer data from various touchpoints and analyzing it to gain insights to improve customer satisfaction and organizational performance.

1. Customer Relationship
Management
CRM

2. Definition
CRM is “the automation of horizontally integrated business processes
involving front office customer contact points (marketing, sales, service )
via multiple, interconnected delivery channels
(Metagroep, 2000)
CRM is a process that addresses all aspects of identifying customers,
creating customer knowledge, building customer relationships and
shaping their perceptions of the organization and its products”
CRM is “the development and maintenance of mutually beneficial long-
term relationships with strategically significant customers”
(Buttle, 2000)

3. Definition
CRM is an IT enabled business strategy, the outcomes of which optimise
profitability, revenue and customer satisfaction by organizing around
customer segments, fostering customer satisfying behaviours and
implementing customer centric processes”
(Gartner, 2004)
“CRM targets the building of an infrastructure which may be used to
develop long-term customer-supplier relationships through real time
marketing.” Regis McKenna

4. Statistics

5. Four major perspectives on
CRM
Strategic- Core customer centric business strategy that aims at
winning and keeping profitable customers
Operational- automation of customer facing processes like sales,
marketing and customer service
Analytical-intelligent mining of customer related data for strategic or
tactical purpose
 Collaborative-applying technology across business boundaries with a
view to optimizing company, partner and customer value.

6. Ingredients of CRM
Ingredients that work together to form successful CRM system

7. Objectives of CRM
• Improve Customer Satisfaction : satisfied
customers are loyal to the business
• Expand the Customer Base : creates
knowledge for prospective customers
• Enhance Business Sales : close more deals,
increase sales, improve forecast accuracy
• Improve Workforce Productivity : organized
manners of working for sales and sales
management staff.

8. MARKETING CRM
A product-wise look at
profitability
A customer-wise look at
profitability
Costs are assigned to
products
Costs are assigned to
customers
Transaction based Relationship based

9. Defines Marketable
Segments
Eventually a combination of all this help in understanding
Customer Lifetime Value
A good CRM captures
When, How often, Where, How Much and What All
aspects of a customer’s buying pattern

10.  Drives the Front Office of CRM
 Starts with Attribute definition
 Maps these from Sales / Marketing /CS
 Ends at Customer Database
 Takes care of all Lead Generation Efforts
 Drives the Back Office of CRM
 Starts with Customer Database
 Ends at New Business Strategies
 Takes care of Datamining & Analytics

11. Need to study CRM
Changing consumer dynamics
Changing market characteristics
Social media and the Web 2.0
Changes in respect to data storage
Changing marketing orientation

12. Understanding CRM
The cost of acquiring new customers- competition is a mouse click
away, CRM promises to help companies know which customers to keep
and which they are willing to lose, automation of business processes
saves precious time and money.
From customer acquisition to customer loyalty- dealing with
customers who are fickle minded, put premium on their leisure time,
need individualized attention, rely on reviews and contribute to viral
marketing
Optimizing customer experience
Internet has changed the rules- bidirectional communication, 24hr
access, real time information, ability to research, online customer
support, online self services, personalized content
Operational and Analytical CRM

14. Identify
Interact
Differentiate
Customize
Core of CRM

15. These steps are roughly in order of increasing difficulty and complexity,
even though there may be a good deal of overlap among them
Identify: Identifying customers is of prime importance. A company can’t
have a relationship with customer if they do not know about them.
Differentiate: Customers are different in different ways. They represent
different levels of value to the company, and by categorizing them the
company can prioritize their efforts and gain most advantage with the
most valuable customers and also tailor the firms behavior toward each
customer based on their individual need. This leads to customer
segmentation.
Interact: Interacting with the customers would lead to successful CRM
focus in the company. Improvement should be there both in cost
efficiency and effectiveness.
Customize: Customize some of the aspect of company’s behavior toward
the customer in terms of what is offered.

16. CRM strategy
Offensive(new)
Enlarge market
Increase market
share
Defensive(current)
Build switching
barrier
Increase customer
satisfaction
Treacy and Wiersema

17. 1 Knowledge
Discovery
3 Market
Planning
2 Customer
Interaction
4 Analysis
and
Refinement
CRM Process
Learning
Action

18. Knowledge Discovery:
Analyzing customer specification and investment strategies. Analysis done
through process of Customer identification, customer segmentation and
customer prediction.
Functional data warehouse which is logical collection of information from all
over the organization , supports business analysis activities and decision making
tasks.
Used for campaign management to improve response rate.
Help company in customizing offers, reduce costly developing targeted
campaigns.
Customer Interaction:
Executing and managing customer communication with relevant information at
the right time with different communication channels as preferred by the
customer.
With this the company has the opportunity to deliver messages and sales
opportunities and to handle service issues.

19. Market Planning:
It defines specific customer offers and distribution channels.
Four different activities - market planning, offer planning, marketing planning
and communication planning.
It enables the development of strategic communication plans and programs.
Analysis and refinement:
Capture and analyzing data from customer dialogue from interaction channels.
It’s a continuing learning process focusing on refining communication, price
volumes and approaches to excel business opportunities.

20. Elements of CRM
Customer Knowledge to develop long term relationships that are mutually
profitable by helping customers on time, in a targeted way and with more
appropriate solutions
◦ Who the customer is?
◦ Customer profile
Relationship Strategy: “tell” and “listen” more than “sell”
◦ Purchase
◦ Trust: willingness to rely on an exchange partner in whom one has
confidence
◦ Commitment: an enduring desire to maintain a relationship. It can be
personal, moral or structural
Communication
◦ Is the supplier capable of carrying on a dialogue with the individual
customers independent of time and location?
The individual value proposition

21. Customer-Supplier
relationships
Partner
Ambassador
Client
Prospect

22. CRM Strategies
• The aim of the CRM strategy is to be able to find ways to
deliver greater value to customers in more cost efficient
ways that employees find satisfying.
 A CRM strategy has to be good for the customer, the
employee and the organization.
• Deals with establishing, developing and increasing
customer relations from a profitability perspective.
• Deals with segmenting customers based on the how
important they are to the business.
• Deals with handling large amount of data - data which is
complied from all communication channels like
company’s website, telephone, email, chats & social
media.

23. CRM Strategy
Treacy and Wiersems (1996) discerned three “value disciplines”, namely:
Operational excellence
◦ combination of price, quality and ease of purchase
◦ Low price and problem free service
◦ Products are purchased at low price and large volumes
◦ Production is standardized
Product leadership
◦ innovation and renewal
◦ Newest and best products
Customer intimacy
◦ Building relationship with customer
◦ Lifetime value of customer

24. Customer Intimacy
From :
Product orientation to
Production orientation to
Selling orientation to
Customer orientation

25. Benefits for the firm
1.The firm experiences more financial stability – as it has a stable, loyal customer
base who regularly buys from them,
2.The firm can reduce its promotional budget – as less investment is needed to be
spent on generating new customers,
3.New products are typically more successful – as they can be more easily cross-
sold to a loyal customer base,
4.There is less need to compete on price – as the customer sees real value in the
relationship and its associated benefits,
5.Existing customers are easier to manage and require less information and
support,

26. Benefits for the firm
1. It creates a sustainable competitive advantage – competitors will find
it much harder to win your customers from you,
2. New customers are generated from positive word-of-mouth –
satisfied/loyal customers are more likely to recommend your firm,
and
3. A higher growth rate is likely – as long-term customers usually
increase their level of purchases over time.

27. Possible Benefits for the Customer
They are confident that the firm will deliver consistent quality,
They know that they can trust the firm,
They know that they will be able to fix any problems quickly,
They know they can get things done faster, if needed,
They feel comfortable in discussing/raising problems/issues,
They receive special deals/treatment from time to time, and
They may develop social relationships/friends.

28. Relationship
Orientation
Culture
Mission
System
Communication
Structure
People

29. CRM MISSION
The Ashridge Mission Model
Purpose: The company’s
reason of existence: the
customer
Values: What the
company believes in:
liking the customer
Code of conduct: course of action
and policy which subscribe to
strategy and values
Strategy: Competitive
position and distinctive
competency through
relationship

30. MISSION STATEMENTS
INFOSYS' MISSION. "To achieve our objectives in an environment
of fairness, honesty, and courtesy towards our clients, employees,
vendors and society at large.“
IBM values
◦ Dedication to every client’s success
◦ Innovation that matters – for our company and for the world
◦ Trust and personal responsibility in all relationships”
“At IBM, we strive to lead in the creation, development and manufacture of
the industry's most advanced information technologies, including computer
systems, software, networking systems, storage devices and
microelectronics. We translate these advanced technologies into value for
our customers through our professional solutions, services and consulting
businesses worldwide.”

31. CRM Vision
A CRM vision combined with your strategy is the
blueprint for how your business is going to turn its
customers into an asset by building up their value.
Customer centric business model. It would operate
around customer needs (not on product, resources or
processes) in order to improve customer satisfaction,
loyalty and retention.
The CRM vision & strategy would be different for
different line of business for example
FMCG : HUL
Consumer Durables : Maruti

32. Culture
The culture consists of the beliefs, norms and values which are adhered
to by the people within the organization and which have repercussions
on their behavior.
The culture of relationship oriented organization is characterised by the
fact that it understands customers: its employees can place themselves
with the world and empathise with them.

33. Creating a corporate culture
Describe common values and norms
Position those persons who spread the culture and who are seen as
example by others in the appropriate positions within the organization.
Communicate more intensely internally regarding the values and norms
and translate these into concrete actions.
Deploy symbols and other information carriers in the dissemination of
philosophy
Apply this to human resource management
Take measurements

34. Structure
Team based account
management
Account Manager
Personal sales, sales
support, direct
marketing,intermediaries
and mass communication
5%
15%
65%
15%
20%
80%
The Customer Pyramid
AAA
B
C
CUSTOMERS

35. PEOPLE
Employees develop relationship
Agents in call centre, the representatives, the service staff as
well as the people in the administration department
Important aspects of social competencies are:
◦ The capacity for empathy: demonstrate the he/she is
sympathetic to customer’s problems
◦ The ability to create congruence: It is related to openness,
transparency and sincerity. It tends to benefit from an
honest and open exchange of information without hidden
agendas
◦ The ability to use an unconditionally positive approach to
the other person

37. A Relationship Life Cycle Model
High cooperation
Low competition
Low cooperation
High competition
Time
Pre-
relationship
stage
Development
stage
Maturity
stage
Decline
stage
(Wilkinson and Young, 1997)

38. Functions of Customer Relationship Management
Management
Decision
Process
Customer sensitivity
•Diversity
•Information
•Differentiated
offering
Value Creation Process
Technology delivery process
•R&D
•Technology integration
•Efficiency, effectiveness
learning
Product delivery process
•Concept to launch
•Manufacturing process
Customer delivery process
•Supply chain
•Distribution
•Infomediation (distribution
of information)
Value-based
Strategies
•Pricing
•Communication
(Sharma et. al., 2001)

39. The role of salespeople as relationship builders and promoters
Salespeople by:
identifying potential customers and their needs;
approaching key decision makers in the buying firm;
negotiating and advancing dialogue and mutual trust;
coordinating the cooperation between the customers and
their company;
encouraging the inter-organisational learning process;
contributing to constructive resolution of existing conflicts; and
leading the customer relationship development team
are the individuals in any organisation who act both as relationship
builders and as relationship promoters.

40. Models of Customer Relationship Management
The Evans and Luskin (1994) model for effective
Relationship Marketing
Relationship marketing inputs
•Understanding customer expectations
•Building service partnerships
•Empowering employees
•Total quality management
Relationship marketing outcomes
•Customer Satisfaction
•Customer loyalty
•Quality products
•Increased profitability
Assessment state
•Customer feedback
•Integration
(Evans and Luskin, 1994)

41. Models of Customer Relationship Management
The Brock and Barcklay (1999) model of selling
partner relationship effectiveness
Independence
Relative influence
Mutual trust
Cooperation
Selling partner
relationship
effectiveness

42. Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.
Initiating the relationship
Engage in strategic prospecting and qualifying;
Gather and study pre-call information;
Identify buying influences;
Plan the initial sales call;
Demonstrate an understanding of the customer’s needs;
Identify opportunities to build a relationship; and
Illustrate the value of a relationship with the customer

43. Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.
Developing the relationship
Select an appropriate offering;
Customise the relationship;
Link the solutions with the customer’s needs;
Discuss customer concerns;
Summarize the solution to confirm benefits; and
Secure commitment.

44. Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.
Enhancing the relationship
Assess customer satisfaction;
Take action to ensure satisfaction;
Maintain open, two-way communication; and
Work to add value and enhance mutual opportunities.

45. Managing Customer Relationships
Qualifying prospects for relationship building
Opportunities
for adding value
Potential profitability of customer
High
Low
Low High
Use a non
customized
approach
Seek better
opportunities
elsewhere
Build a strong
and lasting
relationship
Focus on
loyalty-building
program

46. Relationship networks
The ultimate outcome of a successful CRM strategy is the creation
of a unique company asset known as a relationship network.
A relationship network consists of the company and its major
customers with whom the company has established long and
enduring business relationships.
The additional aspects of a global salesperson’s job are to:
Manage customer value;
Act as customer advocate; and
Enhance customer loyalty and build a “health” and
profitable network of relationships.

47. Marketing Metrics

48. • ROI (Return on Investment): ROI is the most common formula and
probably the easiest to understand. ROI is a measurement tool used to
calculate the effectiveness and value of an investment. It shows the gain
and/or loss of an investment by comparing and measuring the amount
of return on an investment with the investment costs.
For example, a company makes an investment of $5,000 into Google
AdWords and generates $10,000 in net profit. This would be a 200
percent ROI. The formula would look like this: ROI = (Net Profit / Cost of
Investment) x 100. Divide the return of an investment by the cost of the
investment, and the result is a percentage. In this case, ROI =
($10,000/$5,000) X 100.
• Customer retention rates: Your attrition rate can be defined by the
percentage number of customers you have lost over a given period. So
retention is just the opposite of attrition rate, ie. The number of
customers gained during a given period
Marketing Metrics

49. Calculated as : Based on 3 pieces of information
Number of customer at the end of a period (E) = 28
Number of new customers acquired during that period (N) = 10
Number of customers at the start of that period (S) = 25
Customer Retention Rate = ((E-N)/S)*100
= (28-10)/25 *100= 72%
• CPA (Cost Per Action): It is a formula that measures the amount a business has
paid to attain a conversion. CPA campaigns are relatively low-risk, as costs are
only accumulated once the desired action has occurred.
For example, a company invests $1,000 in a campaign. They received 100 new
customers specifically from campaign. Their CPA is $10/customer. The formula
is CPA = (Cost/ Conversions). Divide the cost of the ad campaign by the
conversions.
• ROAS (Return On Advertising Spend): Its used to measure the profit made
from advertising. Evaluate the performance of marketing campaigns, how much
revenue you get back on each dollar spent on advertising.
For example, a company spends $20,000 on Google Ads and received $60,000 in
revenue. Their ROAS is $2 – ($60,000 - $20,000) / $20,000.
The formula: ROAS = (Ad revenue/ Cost of ad source). Divide revenue received
from advertisement by the cost of the advertisement.

50. • CLV (Customer Lifetime Value): This metric is used to determine the economic value a
customer brings to your business, not only for the time being, but for the entire time
they’re a customer.
The metric considers everything from their first interaction to their final purchase with your
company. This is essential to determine whether there is more value in long-term marketing
channels.
For example, if you fill 600 orders gaining revenue of $40,000, your average order value
would be $66.67. Then, you can determine the purchase frequency (PF) by dividing the
number of orders by the unique customers. In this case, if you had 400 unique customers,
the PF would be 1.5. To calculate your Customer Value (CV), you multiply these numbers.
In this case, it would be 66.67 (AOV) x 1.5 (PF) = $100 (CV).
Now, to determine the Customer Lifetime Value, you take the CV and multiply it by the
customer’s duration with your company. Generally, choosing a number between one and
five
provides accurate results, so let’s assume each order also comes with a contract. Let’s
assume
a 3-year contract is your minimum.
Your formula would look like this: 100 (CV) x 3 (Years) = $300. Your customer’s lifetime
value is $300 over a course of three years.
The Customer Lifetime Value (CLV) formula:
AOV = (Number of Orders X Revenue)
PF = (Average Order Value / Number of Unique Customers)
CV = (Average Order Value X PF)
CLV = Customer Value X Customer’s Duration with the Company

51. Metrics used in Customer
Analytics

53. Acquisition Rate
• The proportion of prospects converted to customers.
• It is calculated by dividing the fraction of prospects acquired by the total
number of prospects targeted.
• The acquisition rate denotes an average probability of acquiring a
customer from a population. Thus, the acquisition rate is always calculated
for a group of customers.

54. Acquisition Cost
• AC is defined as the acquisition campaign spending divided by the number
of acquired prospects.
• AC is measured in monetary terms.

55. Average Inter-Purchase Time
• Average Inter-Purchase Time (AIT) is the average time
elapsing between purchases.
• It is measured in terms of specific time periods (days, weeks,
months, etc.). It is computed by taking the inverse of the
number of purchase incidences per time period.

56. Size of wallet
Size of wallet is the amount of a buyer’s total spending in a
given category—or, stated differently, the category sales of all
firms to that customer. The size of wallet is measured in
monetary terms.

57. Share of Category Requirement
• Share of Category Requirement (SCR) is defined as the
proportion of category volume accounted for by a brand or
focal firm within its base of buyers. This metric is often
computed as an aggregate level metric, when individual
purchase data are unavailable.

59. Individual Share of Category Requirement
(iSCR)
• At the individual level, when such data are available, iSCR is computed by
dividing the volume of sales (V) of the focal firm to a particular customer
by the total category volume she buys.
• The metric thus indicates how much of the category requirements the
focal firm satisfies of an individual customer.

61. Share of Wallet
• Share of Wallet (SW) is defined as the proportion of category
value accounted for by a focal brand or a focal firm within its
base of buyers.
• It can be measured at the individual customer level or at an
aggregate level (e.g., segment level or entire customer base).

62. Individual Share of Wallet (iSW)
• Individual Share of Wallet (iSW) is defined as the proportion
of category value accounted for by a focal brand or a focal
firm for a buyer from all brands she purchases in that
category.
• It indicates the degree to which a customer satisfies her needs
in the category with a focal brand or firm.

63. Aggregate Share of Wallet (aSW)
• Aggregate share of wallet (aSW) is defined as the proportion
of category value accounted for by a focal brand or a focal
firm within its entire base of buyers.
• It indicates the degree to which the customers of a focal firm
satisfy their needs on average, in a category with a focal firm.

65. Market Share
• It is defined as the share of a firm’s sales relative to the sales of all firms—
across all customers in the given market. MS is an aggregate measure
across customers. It can be calculated either on a monetary or a
volumetric basis.
Where does the information come from?
• Numerator: Sales of the focal firm are readily available from internal
records.
• Denominator: Category sales are available from market research reports or
from competitive intelligence.

66. Sales growth
• Sales growth of a brand, product, or a firm is a simple measure that
compares the increase or decrease in sales volume or sales value in a
given period to sales volume or value in the previous period. Hence, it is
measured in percent.
• It indicates the degree of improvement in the sales performance between
two or more time periods and acts as a flag for the management.
• A negative sales growth or sales growth lower than the rest of the market
is normally a cause for concern.

67. Metrics related to E-business
1. Total visits : This metric will give you how effective your campaigns are at
drawing the traffic. This number should grow steadily over time; if it
drops month to month, it’s time to take a hard look at your marketing
channels to identify the problem.
2. Channel-specific Traffic : This is useful for segmenting your traffic
sources to pinpoint which ones are over and underperforming in your
overall marketing campaigns. In general, you should break these down
into the following four channels/sources:
• Direct Visitors – These are the ones who come to your website by typing
your URL into their browser.
• Organic/Search – These are visitors who arrive at your site based on a
search query.
• Referrals – These visitors arrived at your side from a link on another
website or blog.
• Social Media – If you have a social media presence, you’ll want to
measure the visitors who arrive at your site from your social media
platforms. Social traffic also gives you some general insight into the
overall effectiveness of your content marketing and other digital

68. campaign as well, since social traffic is a good indicator of engagement and
awareness.
4. New sessions: Metric found in Google Analytics- tells how many are
New site visitors and how many are recurring visitors. It indicates if the
site is good enough to retain the interest of already exisiting customers
and how effective its outreach is. For example, if you change the
structure or content of your site significantly and your ratio of recurring
visitors to new visitors drops, it could be an indication that your website
is losing effectiveness in warranting multiple visits.
5. Bounce Rate : The bounce rate is the number of people who visit your
site and leave right away without performing any meaningful action. A
high bounce rate can point to several flaws in your digital marketing:
Poor campaign targeting, irrelevant traffic sources, weak landing pages,
etc.
6. Exit Rate: This is a helpful metric, especially for websites that have a
multi-page conversion process. The exit rate differs from the bounce
rate in that the exit rate measures the number of people who left the
site from a particular page as a percentage of all people who viewed

69. that particular page. This helps you identify drop-off points in your
conversion process so you can optimize accordingly.
6. Total Conversions: One way to define conversions is the number of
anonymous site visitors who become digital records in your CRM or
marketing database, whether by making a purchase, downloading an
asset, or subscribing to a mailing list. This is the number your financial
department will be most interested in, the ultimate measure of success
for a marketer. Low conversion rates are indicative of any number of
problems, from poorly designed websites to unattractive offers.
7. Lead to close rate: Less a measure of Marketing effort and more a
measure of sales effort. Divide Total number of sales by total number of
leads. This defines sales success. If value is less – inefficient final sales
startegy.

70. Customer Profiling and Segmentation
Customer Profiling: Is a description or analysis of a typical or ideal customer for
one’s business”.
Customer Segmentation : Understanding similar traits amongst your customer
base enables you to segment them into similar groups by shared characteristics
and traits.
Can target each customer segment with a bespoke approach, providing a more
personalised approach
Customer Profiling and Transaction Analysis
Once profile of customer is built, can analyze transactional data. Identify
patterns and trends amongst your customers by segment.
Considers not only demographic profile but also the past behaviour.(trend
analysis).
Gives most profitable customer.
Optimising your marketing budget and improving return on investment.
Using Customer Profiling for Prospect Acquisition
After you have identified the profile of your best and most profitable
customers, you can then find look alike prospects and target them in an
effective manner

71. Customer Profiling and Segmentation
These prospects should have a higher propensity to take up your offer and
therefore provide a more cost-effective means of targeting new customers.
Customer profiling and segmentation provide the tools to fully understand your
customer base, improve customer engagement and target look alike prospects
Benefits of Customer Segmentation
• Define Audiences – Segmentation allows us to understand your customers
and identify those that are the most profitable, valuable or offer the
greatest future opportunity.
• Personalisation – The ability to group your customers and tailor
communications and promotions based on their inherent needs and
preferences provides a personalised service which customers expect or
prefer.
• Improved ROI – Understanding your customers enables you to target
promotions and communications more effectively by channel and
message. Targeted marketing offers cost savings by targeting customers
that are more likely to respond but also improves response rates and
therefore return on investment.

72. Customer Profiling and Segmentation
• Customer Satisfaction – Tailoring product offerings and communication
provide a more personalised relationship that improved customer
engagement and satisfaction. We all know it costs 10 times more to attract
new customers so retaining existing customers is extremely important.
• Prospecting – Once you have identified the profile of your best customers
(by loyalty or profit) you can target look-alikes who represent your best
opportunity prospects and future customers.
Ways to segment customers:
This could include data on customers such as
1. Geographic details (based on country, region, city, population density,
climatic zone)
2. Demographic information (age, gender, education, occupation, income,
family lifestage, family size, ethnicity, religion)
3. Psychographic details (also called lifestyle segmentation (based on
different personality traits, values, attitudes, interests, and lifestyles of
consumers.)
4. Behavioral (based on actual consumer buying behavior)
5. Transactional /Value (LTV) : (transactional value or potential revenue they
bring to company)

75. Assessing Customer Value : RFM
RFM is a method used for analyzing customer value.
Many direct marketing companies use RFM measures of behavioural
loyalty. The most loyal are those who have high scores on the three
behavioural variables: recency of purchases (R), frequency of purchases
(F) and monetary value of purchases (M). The variables are measured as
follows:
Recency time elapsed since last purchase (How recently did the customer
purchase?)
Frequency number of purchases in a given time period (How often do they
purchase?)
Monetary monetary value of purchases in a given time period. (How much do
they spend?)
Judging customer value on just one aspect will give an inaccurate report of
customer base and their lifetime value.
RFM model combines three different customer attributes to rank customers.
If they bought in recent past, they get higher points. If they bought many
times, they get higher score. And if they spent bigger, they get more points.
Combine these three scores to create the RFM score.

76. Assessing Customer Value : RFM
Customers can be classified into quintiles or deciles in terms of recency,
frequency and monetary value of the purchases they have made. This is
called RFM analysis. Expect to find that customers who have bought most
recently, frequently or spend most are the most responsive in general terms.
Here is an example
Customer Recency Frequency Monetary (in Rs)
A 10 days 2 transactions 20,000
B 39 days 4 transactions 10,000
C 84 days 3 transactions 3,000
D 2 days 1 transaction 5,000
E 20 days 6 transactions 25,000

77. Customer Recency Frequency Monetary (in Rs)
Recency
Score
Frequency
Score
Monetary
Score
A 10 days 2 transactions 20,000 2 4 2
B 39 days 4 transactions 10,000 4 2 3
C 84 days 3 transactions 3,000 5 3 5
D 2 days 1 transaction 5,000 1 5 4
E 20 days 6 transactions 25,000 3 1 1
RFM scoring for the example given can be done as below

78. Customer
Segment
RFM
SCORE
Activity Actionable Tip
Champions 555 Bought recently, buy often and spend
the most!
Reward them. Can be early adopters for
new products. Will promote your brand.
Loyal Customers X55 Spend good money with us often.
Responsive to promotions.
Upsell higher value products. Ask for
reviews. Engage them.
Potential Loyalist 535 Recent customers, but spent a good
amount and bought more than once.
Offer membership / loyalty program,
recommend other products.
Recent
Customers
52X Bought most recently, but not often. Provide on-boarding support, give them
early success, start building relationship.
Promising 5X5 Recent shoppers, but haven’t spent
much.
Create brand awareness, offer free trials
Customers
Needing
Attention
233 Above average recency, frequency and
monetary values. May not have
bought very recently though.
Make limited time offers, Recommend
based on past purchases. Reactivate them.
About To Sleep 222 Below average recency, frequency and
monetary values. Will lose them if not
reactivated.
Share valuable resources, recommend
popular products / renewals at discount,
reconnect with them.
At Risk 155 Spent big money and purchased
often. But long time ago. Need to
bring them back!
Send personalized emails to reconnect,
offer renewals, provide helpful resources.
Can’t Lose Them 145 Made biggest purchases, and often.
But haven’t returned for a long time.
Win them back via renewals or newer
products, don’t lose them to competition,
talk to them.
Hibernating 211 Last purchase was long back, low
spenders and low number of orders.
Offer other relevant products and special
discounts. Recreate brand value.
Lost 111 Lowest recency, frequency and
monetary scores.
Revive interest with reach out campaign,
ignore otherwise.