Group RFM analysis as a novel framework to discover better customer consumption behavior

The RFM model provides an effective measure for customers' consumption behavior analysis, where three variables, namely, consumption interval, frequency, and money amount are used to quantify a customer's loyalty and contribution. Based on the RFM value, customers can be clustered into different groups and the group information is very useful in market decision making. However, most previous works completely left out important characteristics of purchased products, such as their prices and lifetimes, and apply the RFM measure on all of a customer's purchased products. This renders the calculation of the RFM value unreasonable or insignificant for customer analysis. In this paper, we propose a new framework called GRFM (for group RFM) analysis to alleviate the problem. The new measure method takes into account the characteristics of the purchased items so that the calculated the RFM value for the customers are strongly related to their purchased items and can correctly reflect their actual consumption behavior. Moreover, GRFM employs a constrained clustering method PICC (for Purchased Items-Constrained Clustering) that could base on a cleverly designed purchase pattern table to adjust original purchase records to satisfy various clustering constraints as well as to decrease re-clustering time. The GRFM allows a customer to belong to different clusters, and thus to be associated with different loyalties and contributions with respect to different characteristics of purchased items. Finally, the clustering result of PICC contains extra information about the distribution status inside each cluster that could help the manager to decide when is most proper to launch a specific sales promotion campaign. Our experiments have confirmed the above observations and suggest that GRFM can play an important role in building a personalized purchasing management system and an inventory management system. (C) 2011 Elsevier Ltd. All rights reserved.