TUTORIAL WORKSHOP 6

You are an online retailer of a large range of homewares, with products ranging from low value gift cards to high value soft furnishings, and
everything in between, including cookware and dinnerware.

In order to reduce our costs while better targeting our customers with special offers, you need to first understand your customers’ shopping patterns.
Your task is to:

1. Conduct RFM analysis

Recency (most recently purchased) – Frequency (most frequently purchase over the period) – Monetary value (spent the most over the period)

2. Identify segments
3. Determine which segments to target
4. What might be some effective marketing actions?

In this workshop you will learn/develop the following skills:

 Working with pivot tables to aggregate data

From the Tutorial folder under Module 6, locate the files Tut6 data.xlsx and save the file as you would normally do to retrieve later.
1) Name Sheet1 Data

2) Aggregate data using a pivot table: The data is currently at an order level, but we need it to be at a customer level. A pivot table will enable
us to achieve this.

a) From anywhere in the data set, go to the Insert ribbon and select Pivot Table. Excel has automatically detected the table range and given
us options for where we want the pivot table placed. Let’s accept the New Worksheet option, so just click OK. Name your worksheet
RFM analysis.

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b) Now let’s build our table:
i) Click the checkbox for Customer ID. It should automatically go to our Rows box.
ii) Recency: Hover your mouse over Order Date and drag-and-drop into Values. What we’re after is the most recent purchase date,
so change the Value Field Settings to Max. Click OK. Notice our date has reverted to a number. We can fix that by simply
formatting the number as a Date.
iii) Frequency: Using the same procedure, put Order ID into Values. We want the values to be a simple Count. You may need to
format the numbers appropriately.
iv) Monetary value: Lastly, put Sales into Values, and set it to Sum.

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3) Now that we have our data in order, we can proceed with the RFM analysis. We can’t do this is the pivot table. This was merely to aggregate the
data. Therefore, let’s copy the pivot table and Paste Special Values outside the pivot on the same sheet. Reformat numbers appropriately.
**IMPORTANT NOTE: Delete the last “Grand total” row**

4) Segmenting by R-F-M. We need to assign each customer a “bin number” based on where the value of their recency, frequency and monetary

value ranks between the minimum and maximum values in the column (similar concept to ATAR 😊). At the same time, we’ll make this value an
integer between 0 and 10. The function we’re going to use in Excel is called =PERCENTRANK.EXC.
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=PERCENTRANK.EXC(Range, First value in the range, 1)*10 E.g. =PERCENTRANK.EXC($G$4:$G$793,G4,1)*10. NB: Make sure you make the range
an absolute range.

Repeat the formula for Frequency and Monetary value in the next two columns to obtain a score for each variable. Format to whole numbers and
name your new columns R, F, M.

5) Now you can filter to identify segments based on RFM. E.g. Filter each RFM to identify your best customers by select values 7-10.

6) To determine the numbers of customers in each segment, you can filter, then subtotal the count, using the subtotal function. This function
gives us several options, but we are just interested in a count, e.g. =SUBTOTAL(2,L10:L793)

7) Name a new worksheet, Segments. Copy-Paste Special Values into your subtotal results into the Segments worksheet and label the segment
a name of your choice (e.g. “Champions”).

8) Use the table following as a guide to choosing segments and suggest marketing action.

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Customer Segment Activity Actionable Tip

Champions Bought recently, buy often and Reward them. Can be early adopters
spend the most! for new products. Will promote your
brand.

Loyal Customers Spend good money with us often. Upsell higher value products. Ask for
Responsive to promotions. reviews. Engage them.

Potential Loyalist Recent customers but spent a good Offer membership / loyalty program,
amount and bought more than once. recommend other products.

Recent Customers Bought most recently, but not often. Provide on-boarding support, give
them early success, start building
relationship.

Promising Recent shoppers but haven’t spent Create brand awareness, offer free
much. trials

Customers Needing Above average recency, frequency Make limited time offers.
Attention and monetary values. May not have Recommend based on past
bought very recently though. purchases. Reactivate them.

About To Sleep Below average recency, frequency Share valuable resources, recommend
and monetary values. Will lose them popular products / renewals at
if not reactivated. discount, reconnect with them.

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At Risk Spent big money and purchased Send personalized emails to
often. But long time ago. Need to reconnect, offer renewals, provide
bring them back! helpful resources.

Can’t Lose Them Made biggest purchases, and often. Win them back via renewals or newer
But haven’t returned for a long time. products, don’t lose them to
competition, talk to them.

Hibernating Last purchase was long back, low Offer other relevant products and
spenders and low number of orders. special discounts. Recreate brand
value.

Lost Lowest recency, frequency and Revive interest with reach out
monetary scores. campaign, ignore otherwise.

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