A Modified RFMI Framework and Strategic Implications for Analyzing VIP Customers in Logistics Companies: A Case Study of Jiaji Co. Ltd. in China

Abstract

The characteristics of an ‘ideal’ customer vary widely according to the requirements of different industries; however, it is generally unknown what kind of “ideal” customers contributes to the logistics industry, an industry characterized by high growth and volatility over the last few years. The RFM framework is one of the most popular customer segmentation models widely used in CRM (Fader et al. 2005; Hughes 1995; Reinartz and Kumar 2003; Verhoef et al. 2003). However, little is known about the mechanisms that segment customers in the logistics industry. This paper aims to address these issues by presenting an integrated case study that investigate the RFMI model and marketing strategies of a giant logistics company in China.

The RFM model is a key means for segmenting customers according to customer value and profitability. R (Recency) represents the time apart from the most recent purchase; F (frequency) represents how often a customer has purchased during a certain period; M (monetary value) means the money customer spent during a certain period (Bult and Wansbeek 1995; Blattberg et al. 2008, pp. 323–326). In order to better identify the characteristics of VIP customers, we upgrade the RFM model to the RFMI model by using four factors—R, F, M, and I to segment customer groups. Since different industries have differences in frequency, recency and monetary value, we incorporate the factor of industry characteristics, and propose a new RFMI model.

Specifically, this study takes Jiaji Co. Ltd. in China, a large scaled private logistics corporation, as an example to propose a new marketing strategy for logistics companies. In the light of K-Means algorithm and customer relationship life cycle, we subdivide VIP customers into four categories, i.e. Honor, Diamond, Platinum, and Gold. In response to these different segments, we propose consequent strategies—locked-in strategy, differentiated marketing, reference marketing, and relationship marketing. We suggest that, by adopting and automating our RFMI practice, companies will be well placed to increase sales from their existing VIP customer base and to expand into new potentials—meeting their growth objective.

Specifically, by adopting our RFMI model and such marketing strategies in 2006, Jiaji had seen explosive growth, with the number of new outlets increasing to over 500 in 2007, and profits increased by 1 % per month in these years. The sales reached ¥0.8 billion RMB in 2008. Particularly, in 2009, Nanchang branch of Jiaji has finished the sales of ¥45.15 million RMB, and profits of ¥2.11 million RMB.