A review of data mining methods in RFM-based customer segmentation

Abstract

Data mining (DM) is the process of extracting knowledge from data. Knowledge from customer behaviour segmentation is useful for companies in setting the target market and developing a marketing strategy. Recency Frequency Monetary (RFM) model is the most behaviour segmentation used. Many customer-segmentation studies in various application areas use the RFM model that collaborates with DM. With many methods in DM, the selection of appropriate methods can reveal useful hidden patterns in customer segments. This paper aims to analyse DM methods that collaborate with the RFM model and synthesize them to propose a customer segmentation framework. This study uses a comprehensive literature review published in 2015-2020. The most widely used methods are clustering and visualization from seven DM methods analysed. Due to the increased visualization function and the need for customers’ geo-demographic data to be considered in the analysis, this study presents a new framework for using DM methods with the RFM based segmentation in the Geographic Information Systems (GIS) environment. This framework helps analysts utilize DM methods to uncover and understand customer characteristics, so companies can set the target market and develop a marketing strategy to increase their competitive advantage.