Predicting customer value per product: From RFM to RFM/P

Rodrigo Heldt, Cleo Schmitt Silveira and Fernando Bins Luce

Journal of Business Research, 2021, vol. 127, issue C, 444-453

Abstract: Recency, frequency, and monetary (RFM) models are widely used to estimate customer value. However, they are based on the customer perspective and do not take the product perspective into account. Furthermore, predictability decreases when recency, frequency, and monetary values vary among product categories. A RFM per product (RFM/P) model is proposed to first estimate customer values per product and then aggregate them to obtain the overall customer value. Empirical applications for a financial services company and a supermarket demonstrate that RFM/P opens up the possibility to combine customer and product perspectives. Additionally, when there are changes in customer purchase behavior regarding recency per product and frequency per product, which is usual, RFM/P prediction accuracy was found to be better than traditional RFM.

Keywords: Customer lifetime value; CLV; RFM; Customer base analysis; Product orientation; Customer orientation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:127:y:2021:i:c:p:444-453

DOI: 10.1016/j.jbusres.2019.05.001

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