RFM analysis purpose RFM analysis uses customers’ Recency, Frequency, and Monetary patterns primarily to:

Introduction / Context:
RFM (Recency, Frequency, Monetary) is a lightweight but powerful technique for customer segmentation. By scoring how recently a customer purchased, how often they purchase, and how much they spend, marketers identify high-value groups for retention, cross-sell, and re-activation campaigns.

Given Data / Assumptions:

• We have customer-level purchase histories.
• We can compute recency (time since last order), frequency (orders in a window), and monetary (spend in a window).
• We intend to prioritize outreach by likely value.

Concept / Approach:

RFM assigns each dimension a score (e.g., 1–5 buckets). Concatenated scores enable easy ranking: customers with high recency, high frequency, and high monetary are prime targets; those with low recency may need win-back campaigns. The method is descriptive ranking, not a specific predictive model like regression by itself.

Step-by-Step Solution:

Verification / Alternative check:

CRM playbooks and analytics primers consistently present RFM as a segmentation and ranking tool used to improve campaign ROI, not as an OLTP or forecasting engine by itself.

Why Other Options Are Wrong:

• Recording transactions: OLTP responsibility.
• Regression-only prediction: RFM is descriptive; prediction may use additional models.
• OLAP-only: RFM can be computed with or without cubes.
• Inventory reorders: separate operational analytics.

Common Pitfalls:

• Using absolute thresholds instead of relative scoring, which can hide seasonal effects.

Final Answer:

Analyze and rank customers for segmentation and targeting.