DMBI ASSIGNMENT

GROUP 7
Ankita Rao (13110)
Debjani Mohapatra (13118)
Mita Asok (13131)
Parvathy Varma R (13136)
Pallavi Prasad (13633)

RFM Rating for Loyalty Customers

RFM (Recency, Frequency, Monetary) analysis is a marketing technique used to determine
quantitatively which customers are the best ones by examining how recently a customer has
purchased (Recency), how often they purchase (Frequency), and how much the customer spends
over a given time period(Monetary Value). The goal of RFM Analysis is to segment customers based
on buying behaviour. To do this, we need to understand the historical actions of individual customers
for each RFM factor. We the rank customers based on each individual RFM factor, and finally pull
all the factors together to create RFM segments for targeted marketing.

To arrive at Recency, we subtracted todays date from the document date so as to arrive at the
number of days from the last purchase.
To arrive at the frequency and monetary value, we used in built functions such as SUMIF and
COUNTIF against each unique CUSTID so as to calculate the number of times and the total
transaction value associated with each customer ID.
Once we calculated the R,F and M, we calculated the overall RFM score by assigning the following
weights:
Weigh
ts
Recenc
y
Frequen

0.4

cy
Moneta

0.2

ry

0.3

Recency is given the highest weightage because it the most relevant data point for retaining an
existing customer. The next important attribute is monetary value as it shows our share of wallet with
a customer and hence is extremely relevant to is. The last attribute is frequency as it a measure of
customer loyalty.
Based on this RFM score, we have classified our customers into 4 categories:
i.

Platinum customers ( 3.2 4.5)

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ii.
iii.
iv.

Diamond customers (2.7 3.1)

Gold customers (2.2 2.6 )
Silver Customers (0.9 2.1)

Observations

For Platinum customers

The average age of the buyers for this segment is 48 yrs. Predominantly in Faridabad and New Delhi,
it also draws customers from Delhi, Ghaziabad, Agra, Kanpur, Mumbai, Noida, Pune and Kota. The
average age is concentrated in Faridabad and New Delhi, from 48-50 yrs. However, for females it is
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only 43 years of age, which gives us a better idea of which age group to target among them. The
presence of places such as Pune and Kota indicates their huge potential, and suggests that we can tap
there to gain customers for the other segments as well.

For Diamond Customers

The average age of the buyers for this segment is 47 yrs. Predominantly in Faridabad and New Delhi,
it also draws customers from Delhi, Mumbai, Agra, Kanpur, Mathura, Bangalore, Dehradun,
Gurgaon and Noida. The average age is concentrated in Faridabad and New Delhi, from 46-49 yrs.
However, for females it is slightly above the average i.e. 50 years of age. The presence of many other
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cities other than the metro cities indicates that Platinum customers can also be drawn from these
places, given proper marketing schemes.

For Gold customers

The average age of the buyers for this segment is 49 yrs. Predominantly in Faridabad and New Delhi,
it also draws customers from Delhi, Gurgaon, Mumbai, Noida, Jaipur and Agra. The average age is
concentrated in Faridabad and New Delhi, from 48-50 yrs. However, for females it is only 36 yrs of
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age, thus giving us an indication that females of this age group can be focussed upon more with
respect to Gold card schemes and offers. Further, the customers are concentrated mostly in metros
and big cities, indicating that Gold card holders are people for whom convenience and accessibility
of the centre and the services play a major role. Based on this information, other major cities can also
be targeted and approached in order to expand their loyalty program.

For Silver Customers

The average age of the buyers for this segment is 50 years, which is slightly above the remaining
segments. Predominantly in Faridabad and New Delhi, it also draws customers from Delhi,
Bangalore, Hissar, Noida, Mumbai, Mathura and Palwal. The average age is concentrated in
Faridabad and New Delhi, from 44-50 yrs. However, for females it is 68 yrs of age, which is the
highest across all the segments, and gives us the valuable insight that older females (>65) are more
likely to subscribe to Silver card over any other. Also, the average age of the customers is more widespread relatively, giving us a much broader customer base to target for this offer. The places in this
analysis indicate a mix of both big and small cities, but the presence of cities like Palwal and
Mathura suggest that nearness is a better measure of success in this case, and accordingly marketing
and promotions may be planned to draw larger volumes from this segment as well as tap the potential
to convert some of them into Gold customers.

Division of customers in the Customer Loyalty Program

According to our RFM score analysis creating a Customer Loyalty Program with the following
categories with the following number of customers is observed

Based on our customer segments, we analysed the different customer sets and came up with relevant
information. First and foremost, as is clear from the visuals presented, in terms of Gender, Males are
the dominant buyers across all 4 segments. Also, Faridabad and New Delhi provide the majority of
these customers across all the segments.

Recommendation
1. The gender ratio of the customers in the Customer Loyalty Program is highly skewed towards
men. In an industry where the women are a high business value proposition, the retail chain is
losing out on considerable growth opportunity by not targeting them. Thus, suitable measures
to attract this segment is highly recommended.
2. Majority of revenue is generated from the Faridabad and New Delhi outlets. The supporting
data shows that other locations such as Gurgaon, Mumbai, Pune etc. also show promise and
the retail chain could focus its growth efforts at these locations too.
3. The RFM score analysis shows that the highest percentage of customers would fall in the
Silver card category. This implies that RFM score in general is towards the lower end of the
spectrum. The store should concentrate their efforts in gaining more repeat customers and
increasing the value of each transaction.
4. Profitability would be greatly increased by aiming to gain larger number of Platinum Card
holders. Using the RFM score, the retail chain would be able to identify and then target only
the customers who fall into profitable RFM segment.
5. The RFM score would help the retail chain to identifying which customers are more (or less)
likely to respond to a specific offer. Hence customised offerings based on preferences derived
from recorded transactional data would help build stronger customer relations.