Customer's life-time value using the RFM model in the banking industry: a case study

The customer's life–time refers to the relationship between the customer and the organisation in which the organisation can achieve more profit from its customer. The RFM model is based on three variables: recency, frequency, and monetary. The methodology of the present paper is to review the databases of Agricultural Bank of Iran, to review the literature, and to interview with experts using questionnaires. Parameters of the RFM model are limited to five variables in three areas of recency, frequency, and monetary value. Variables are weighed using experts' judgements. The number of data records of customers, 12,359, is then classified into 852 special, 1755 major, and 9373 normal classes through applying a clustering method. In addition, customers are segmented into eight groups by the distance to mean of the three parameters of the model. The results show that the normal customers who form 80% of the total customers have the lowest profitability.