Explain the concept of RFM analysis

What will be an ideal response?

RFM analysis, a technique readily implemented with basic reporting operations, is used to analyze and rank customers according to their purchasing patterns. RFM considers how recently (R) a customer has ordered, how frequently (F) a customer ordered, and how much money (M) the customer has spent.
To produce an RFM score, the RFM reporting tool first sorts customer purchase records by the date of their most recent (R) purchase. In a common form of this analysis, the tool then divides the customers into five groups and gives customers in each group a score of 1 to 5. The 20 percent of the customers having the most recent orders are given an R score of 1, the 20 percent of the customers having the next most recent orders are given an R score of 2, and so forth, down to the last 20 percent, who are given an R score of 5. The tool then re-sorts the customers on the basis of how frequently they order. The 20 percent of the customers who order most frequently are given an F score of 1, the next 20 percent of most frequently ordering customers are given a score of 2, and so forth, down to the least frequently ordering customers, who are given an F score of 5. Finally, the tool sorts the customers again according to the amount spent on their orders. The 20 percent who have ordered the most expensive items are given an M score of 1, the next 20 percent are given an M score of 2, and so forth, down to the 20 percent who spend the least, who are given an M score of 5.