The following is from the August 2009 Drilling Down Newsletter. Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection? Just ask your question. Also, feel free to leave a comment.
Want to see the answers to previous questions? Here’s the blog archive; the pre-blog newsletter archives are here.
Q: First of all, thank you for the excellent book! I’m really excited about digging into our own customer data to see what we’ll learn.
A: Thank you for the kind words!
Q: However, when you’re creating the RF Scores, what is the standard timeframe you should use? I have access to about 5 years worth of purchase data – should I create RF scores based on the last 5 years, 3 years, 2 years, 6 months?
Our sales are quite cyclical, so I think the baseline should probably be at least a year, and I’m considering doing two years. It seems as though if I get too much larger than that, my results will be too watered down.
I’m also planning on generating “historical” RF scores by filtering my data to reflect the purchases only up to a certain point. So, to generate a Q1-09 score, I’d create it from sales data of Q1-07 through Q1-09. The Q2-09 score would be from Q2-07 through Q2-09, etc. Does this make sense? It will allow us to see the changes that have been happening in our company even though we’re only just now looking at the data. It will give me a picture of what it would have looked like, had I looked at it back then.
A: I think you have accurately understood the situation and have the right approach! This type of analysis is very sensitive to time frame.
There are really 2 broad types of customer analysis. There is analysis for action in the present, a Tactical approach driving towards a “we should do this now” result, and the more Strategic analysis, which is informational and says “this is what we should have done then” and / or “this is why we should make these business changes”. The shorter time frame is Tactical, the longer timeframe Strategic.
Continue reading RFM versus LifeCycle GridsFollow: