Customer segmentation

Customer segmentation divides customers into groups sharing relevant characteristics so their behaviour and needs can be examined more specifically. RFM is one concrete approach, grouping customers by purchase recency, frequency and monetary value.[1] A segment is a selected analytical grouping, not a permanent label explaining everything about a customer.

A store could distinguish first-time buyers, regular repeat buyers and previously active customers whose next purchase is overdue. Use the grouping to answer a concrete question, such as what information could help with another purchase. Check whether groups support meaningful conclusions and whether their definitions remain consistent. Otherwise movement between segments may mainly reflect a change in classification rules rather than a change in customer behaviour.