An RFM Model Customizable to Product Catalogues and Marketing Criteria Using Fuzzy Linguistic Models: Case Study of a Retail Business

Rocío G. Martínez, Ramon A. Carrasco, Cristina Sanchez-Figueroa and Diana Gavilan
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Rocío G. Martínez: Department of Management and Marketing, Complutense University of Madrid, UCM, 28223 Madrid, Spain
Ramon A. Carrasco: Department of Management and Marketing, Complutense University of Madrid, UCM, 28223 Madrid, Spain
Cristina Sanchez-Figueroa: Department of Statistics and Applied Economy, UNED University, 28040 Madrid, Spain

Mathematics, 2021, vol. 9, issue 16, 1-31

Abstract: In the field of strategic marketing, the recency, frequency and monetary (RFM) variables model has been applied for years to determine how solid a database is in terms of spending and customer activity. Retailers almost never obtain data related to their customers beyond their purchase history, and if they do, the information is often out of date. This work presents a new method, based on the fuzzy linguistic 2-tuple model and the definition of product hierarchies, which provides a linguistic interpretability giving business meaning and improving the precision of conventional models. The fuzzy linguistic 2-tuple RFM model, adapted by the product hierarchy thanks to the analytical hierarchical process (AHP), is revealed to be a useful tool for including business criteria, product catalogues and customer insights in the definition of commercial strategies. The result of our method is a complete customer segmentation that enriches the clusters obtained with the traditional fuzzy linguistic 2-tuple RFM model and offers a clear view of customers’ preferences and possible actions to define cross- and up-selling strategies. A real case study based on a worldwide leader in home decoration was developed to guide, step by step, other researchers and marketers. The model was built using the only information that retailers always have: customers’ purchase ticket details.

Keywords: RFM model; 2-tuple RFM model; fuzzy linguistic modelling; multicriteria decision making; AHP; customer segmentation; customer loyalty in retail; product catalogue management; PCA; k-means (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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