How do the RF and CLV models support sales?

Innovative key account management

In an increasingly competitive market and in order to retain customers in the long term, the theoretical and practical knowledge of customer management is of paramount importance in a company's strategy. Effective customer relationship management contributes to the growth of a company's margins and at the same time creates the basis for the next deal, which is a more cost-effective solution in terms of expenditure, as an existing customer requires fewer resources than a new entrant. However, this does not mean that the existing customer does not require the same level of attention and effort as a new partner, but rather that a different method and channel is used to achieve further goals with a business partner than with an unknown one. The following two issues summarize the concept of CRM (Customer Relationship Management), customer relationship management, which is deepened by the RFM (recency, frequency, monetary) and CLV (customer, lifetime, value) models.

What criteria define a valuable customer? How can these criteria be optimally used in the marketing process?

RFM model

The RFM model is a "customer value calculation" that relies on the analytics of the volume-quality of business and the existing customer database. The operation takes into account data such as the date of the last purchase, the frequency of the purchase, and what kind of sales the customer generates for the business. The evaluation of the data helps to identify important, high-priority customers, those who leave the company, those who are out of reach of the product-service, and the extent to which the use of a particular marketing tool has influenced consumers. The only problem with this model is that it summarises past buying patterns that have already occurred, so it is not suitable for future estimates and forecasts.

CLV model

The essence of the CLV model is that it is based on new customers, i.e. it not only takes into account the past customer database, but also analyses the identity of partners that are considered important for the future. The method is based on "customer profitability", which consists of the age of the customer, the frequency of purchase, price changes and the maintenance, further development and expansion of the product-service. Different CLV calculations are recommended for different products and services.

The collection of data and the resulting preliminary evaluations are not always sufficient to position a profitable customer relationship, as customers may be in contact with each other and thus, as marketing vehicles, may have positive or negative recommendations about the business. In many cases, customers provide useful information for creating, changing or possibly improving a product or service. The resulting placements benefit not only the business, but also the customers themselves, as the product they are looking for is targeted in the right place at the right time in a customer-oriented context, reducing the business' customer creation spend and saving its partners time and effort

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