Customer clustering using RFM analysis

RFM (Recency, Frequency, Monetary) analysis is a method to identify high-response customers in marketing promotions, and to improve overall response rates, which is well known and is widely applied today. Less widely understood is the value of applying RFM scoring to a customer database and measuring customer profitability. RFM analysis is considered significant also for the banks and their specific units like e-banking. A customer who has visited an e-banking site Recently (R) and Frequently (F) and created a lot of Monetary Value (M) through payment and standing orders is very likely to visit and make payments again. After evaluation of the customer's behaviour using specific RFM criteria the RFM score is correlated to the bank interest, with a high RFM score being more beneficial to the bank currently as well as in the future. Data mining methods can be considered as tools enhancing the bank RFM analysis of the customers in total as well as specific groups like the users of e-banking.