Chapter 9, Problem 9.6UYK

Explanation of Solution

Mention the use of RFM analysis for Costco:

Costco can use RFM analysis in order to understand its customer better and can identify certain situations or various trends which need attention.

RFM analysis:

RFM stands for Recency, Frequency and Monetary. It is an analytical technique to determine which customers are best among all by checking recent purchase date (Recency), how often the customer purchases (Frequency) and how much the customer spends (Monetary).

Customers having a score of [5, 5, 5]:

• A customer in the following group has the highest points in Recency, Frequency and Monetary.
• It shows that he or she is a loyal and very important customer and deserves highest level of service to reward his or her loyalty.

Customers having a score of [3, 5, 5]:

• A customer in the following group has the average points in Recency, Frequency and Monetary and lies in the middle group.
• It shows that he or she is a loyal and very important customer and effort need to be made to find out the reasons for which he or she has not been a recent customer.
• Efforts need to be made to ask the customer for feedback for previous purchases.

Customers having a score of [5, 2, 5]:

• A customer in the following group has the highest points in Recency, low points in Frequency and highest points in Monetary and lies in next to top group...