RFM is a retail-oriented metric that rates customers based on their qualifying transaction activity. The three areas represented are:
- Recency - How recently have they purchased something? (Days since last qualifying transaction)
- Frequency - How often do they purchase something? (Average number of days between days with a qualifying transaction)
- Monetary - How large are their purchases? (Total lifetime retail for qualifying transactions)
Within Kognitiv Loyalty, RFM values are refreshed daily as part of the Analytic Dashboard Rebuild and can be manipulated on a transaction type basis by toggling the related flags within the configuration. Interactions and offers do not affect the RFM calculation.
In Kognitiv Loyalty, RFM is represented by a three digit number. Each digit (in order) represents the three areas outlined above and the numbers are always between 0 (none) and 5 (highest). The system is configured to put each 20-percentile segment within the appropriate 1 to 5, while those not qualifying for frequency are given a 0 score. Some members may have an empty score, either because they are too new, or do not have the activity to qualify.
Example: Todd Smith has an RFM of 325.
The "3" represents recency, the "2" represents frequency, and the "5" represents monetary. From this, we can tell that Todd is a pretty average participant with regards to how recent he has recorded an eligible transaction, and how often he records an eligible transaction. However, he is in the highest tier when it relates to total monetary value. At its simplest level, Todd is not the most active participant, but he spends a lot of money.