Estimating Customer Lifetime Value using LRFM Model in Pharmaceutical and Medical Device Distribution Company

Rininta Rahmadianti, Arian Dhini, Enrico Laoh

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

1 Citation (Scopus)

Abstract

Dealing with intense competition encourages companies to build strong customer relationship management to improve customer satisfaction and retention. Extracting information related to customer lifetime value (CLV) supports the company to treat each customer differently based on their contribution to the profitability of the company. This study aims to estimate customer lifetime value of each cluster based on length, recency, frequency, and monetary (LRFM) model, hence provides the company an insight to evaluate their customers and improve marketing strategies. The proposed methodology is a combination of clustering k-means algorithm and AHP method to calculate the CLV using LRFM model in pharmaceutical and medical device distribution company. k-means algorithm was applied to cluster customers, while AHP method was used to gain information related to the importance of LRFM model. AHP results demonstrated that frequency is the most important variable in this sector. Finally, CLV was calculated and ranked for the resulting eight optimum clusters. Cluster 3, cluster 6, and cluster 8, which are the high value loyal customers, are the core customers of the company due to their CLV value. Therefore, the company should allocate company resources to focus on profitable customers.

Original languageEnglish
Title of host publication7th International Conference on ICT for Smart Society
Subtitle of host publicationAIoT for Smart Society, ICISS 2020 - Proceeding
PublisherInstitute of Electrical and Electronics Engineers Inc.
ISBN (Electronic)9780738143552
DOIs
Publication statusPublished - 19 Nov 2020
Event7th International Conference on ICT for Smart Society, ICISS 2020 - Virtual, Bandung, Indonesia
Duration: 19 Nov 202020 Nov 2020

Publication series

Name7th International Conference on ICT for Smart Society: AIoT for Smart Society, ICISS 2020 - Proceeding

Conference

Conference7th International Conference on ICT for Smart Society, ICISS 2020
CountryIndonesia
CityVirtual, Bandung
Period19/11/2020/11/20

Keywords

  • clustering
  • customer lifetime value
  • customer segmentation
  • k-means
  • LRFM Model

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