The main components of the RFM (Recency, Frequency, Monetary) analysis framework are:
1. Recency: This measures how recently a customer has made a purchase or engaged with the company. A lower score indicates less recent engagement, while a higher score indicates more recent engagement.
2. Frequency: This measures how often a customer makes a purchase or engages with the company. A lower score indicates less frequent engagement, while a higher score indicates more frequent engagement.
3. Monetary: This measures how much a customer spends during their transactions. It helps in identifying the highest revenue-generating customers.
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Companies need to know who they plan to cater to before they can develop a relationship with their customers. That's where RFM analysis comes in. RFM stands for recency, frequency, and monetary, a unique framework for visualizing demographic information. Customers are scored according to the recency of their engagement scored on the X-axis, with the frequency of their purchases or engagement on the Y-axis. 1 is a low frequency or recency, while 5 represents a high frequency or recency. (Slide 10)