Which of the following statements about the RFM analysis above is correct?a) Recency is the most important factor, frequency is the second-most important factor, and monetary value is the least important factor to predict customer profitability. b)Frequency is the most important factor, monetary value is the second-most important factor, and recency is the least important factor to predict customer profitability. c) Frequency is the most important factor, recency is the second-most important factor, and monetary value is the least important factor to predict customer profitability. d)Recency is the most important factor, monetary value is the second-most important factor, and frequency is the least important factor to predict customer profitability. Dr. Kim conducted the RFM analysis with customer transaction data. First, he divided the data into twotime periods - calibration period and validation period – and sorted the customers in descending orderbased on the criterion of most recent purchase date (denoted recency), the number of purchases permonth (denoted frequency), and the dollar amount of purchases per month (denoted monetary value) inthe calibration period. Next, he divided the customers into two groups (denoted the 1st half and the 2ndhalf) of equal size in terms of each of recency, frequency, and monetary value. Then, he classified thecustomers by the group codes of recency, frequency, and monetary value. Last, he calculated the averageamount spent by the customers during the validation period for each customer class. The result is asfollows:Average spendingGroup code ofGroup code ofGroup code ofCustomer classin the validationrecencyfrequencymonetary valueperiodClass 11st1st1st$436.79Class 21st1st2nd$230.51Class 31st2nd1st$48.49Class 41st2nd2nd$33.21Class 52nd1st1st$148.13Class 62nd1st2nd$93.81Class 72nd2nd1st$18.33Class 82nd2nd2nd$3.02Which of the following statements about the RFM analysis above is correct?

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Answered: Which of the following statements about…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Which of the following statements about the RFM analysis above is correct?

a) Recency is the most important factor, frequency is the second-most important factor, and monetary value is the least important factor to predict customer profitability.

b)Frequency is the most important factor, monetary value is the second-most important factor, and recency is the least important factor to predict customer profitability.

c) Frequency is the most important factor, recency is the second-most important factor, and monetary value is the least important factor to predict customer profitability.

d)Recency is the most important factor, monetary value is the second-most important factor, and frequency is the least important factor to predict customer profitability.

Dr. Kim conducted the RFM analysis with customer transaction data. First, he divided the data into two
time periods - calibration period and validation period – and sorted the customers in descending order
based on the criterion of most recent purchase date (denoted recency), the number of purchases per
month (denoted frequency), and the dollar amount of purchases per month (denoted monetary value) in
the calibration period. Next, he divided the customers into two groups (denoted the 1st half and the 2nd
half) of equal size in terms of each of recency, frequency, and monetary value. Then, he classified the
customers by the group codes of recency, frequency, and monetary value. Last, he calculated the average
amount spent by the customers during the validation period for each customer class. The result is as
follows:
Average spending
Group code of
Group code of
Group code of
Customer class
in the validation
recency
frequency
monetary value
period
Class 1
1st
1st
1st
$436.79
Class 2
1st
1st
2nd
$230.51
Class 3
1st
2nd
1st
$48.49
Class 4
1st
2nd
2nd
$33.21
Class 5
2nd
1st
1st
$148.13
Class 6
2nd
1st
2nd
$93.81
Class 7
2nd
2nd
1st
$18.33
Class 8
2nd
2nd
2nd
$3.02
Which of the following statements about the RFM analysis above is correct?

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