Analysis of Customer Churn and RFM for TESCO Public Limited Company

Deakin Business School
Department of Information Systems and Business Analytics
Assignment 2
Name of Student:
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Contents
Introduction.................................................................................................................................................3
Literature Review........................................................................................................................................3
Methodology...............................................................................................................................................5
Results.........................................................................................................................................................7
Conclusion.................................................................................................................................................13
Recommendations.....................................................................................................................................13
References.................................................................................................................................................15
Appendix...................................................................................................................................................16

Introduction
This section gives an overview of the report and the problem that this report is solving. The
primary purpose of this report is to provide an analysis of some of the important aspects of
customers from TESCO public limited company. The analysis is meant to assist Telco in making
important decisions which are data- driven as well as being conscious of the nature of customer
base that they have.
TESCO is public limited company leading international supermarket based in the United
Kingdom (UK). TESCO Public limited company has a wide base of customers. TESCO public
limited company would like to improve their customer experience based on the experiences that
they have with the customers in the recent past. As a result, TESCO collected some important
information from their customers. The information that was collected for each client included
customers’ loyalty, customers’ churn, customers’ purchasing amount and the last time of
purchase just to mention a few.
The problem that is being solved in this report is to help TESCO public limited company in
predicting their customer’s churn as well as the Recency Frequency Monetary (RFM). Therefore,
the focus of TESCO is to be able to predict their customers’ church based on the parameters that
they have. Similarly, TESCO is interested in segmenting customers into different categories
based on their churn or loyalty. Segmentation of the customers will enable the management to
properly prioritize the customers and improve on their customer service as well as experience.
Finally, TESCO public limited company is interested in determining the Recency Frequency
Monetary (RFM) of the customers. Recency Frequency Monetary (RFM) method is a technique
that is commonly used in marketing and sales field to quantitatively analyze and determine the
best customers for given product or business (Vermeeren, et al., 2011). Similarly, Recency

Frequency Monetary (RFM) will also help TELCO to evaluate and improve on their customer
loyalty scheme that they launched in 1995.
Literature Review
There are several studies that have been done on marketing, customer service, and customer
satisfaction. Several scholars have published articles and journals on customer satisfaction; ways
of improving customer satisfaction, benefits of improving customer satisfaction and why it is
important to improve customer satisfaction (both to the business and to the customer).
Customer satisfaction is the way of quantifying the extent or the degree to which a client or
customer is happy with a service, a product or even with experience during the service
(Chesnokova, et al., 2013). A study by (Bourne & Paul, 2016) demonstrates why customer
satisfaction is a very important concept for business. The study outlines that a satisfied customer
is a loyal customer. A loyal customer is a treasure that a business should keep and hide from the
rest of the business. The study demonstrates that a loyal customer is very crucial in ensuring that
a business is on par with its competitors. However, this article did outline how to identify some
of the loyal customers that a business should treasure.
A study by (Jung & Yoon, 2013) outlines that customer satisfaction can be used as a tool to stand
out of the rest of the competitors. Therefore, a business with stiff competition, it is important that
they improve on their customer service and experience so that they can attract more loyal
customers (Cheng, et al., 2009). However, this study did not outline the metrics or the techniques
that business can use to identify loyal customers as well as keep the existing ones.
Exceptional customer service or experience can help a company to build a brand (Netemeyer, et
al., 2010). When a company builds a brand of itself or a product, it will be very easy to reach a

wide range of market as well as stand out of the rest of the competitors (Deng, et al., 2013).
Similarly, building a brand will enable the business to be sustainable enough thereby fulfilling
the concept of going concern. Therefore, it should be a primary objective for a business to offer
exceptional customer experience to its customers as well as its prospective customers (Sun, et al.,
2013).
A study on the analysis of market- based approach to customer satisfaction reveal that every
customer should be treated as if they are “very important persons” ( VIP) (Hur, et al., 2015). The
researchers argue that treating customers in a manner to suggest that they are highly valued and
very important will improve their loyalty. The loyalty of a customer is one way of getting
customers outstanding from the pool of customers. The study reveals that some of the best
practices that can make a customer feel very important are when customer service officers make
endless efforts to assist the customer in every way they can as well as when the customer service
officers (and the entire staff of the business) keep their promises and remain honest. However,
the study did not point out some of the important aspects that a business should consider doing to
their customers so that the customers can feel they are treated with utmost respect.
The other way of improving customer satisfaction is by constantly measuring the level of
customer satisfaction (Deng, et al., 2013). In this dynamic market, a business should make it a
habit to constantly measure the level of their customers’ satisfaction. They should get timely
feedbacks o that they can strategize and make necessary adjustments to improve on their
customer experience. Similarly, constantly evaluating the level of customer satisfaction will
enable the business to put the right technology in marketing and offering their services. Putting
the right technology in place will ensure that a business is sustainable and is at par or above par
with the rest of the competitors. However, this study did not outline how customers can be put

into different segments or categories for a better experience. Moreover, the study did not outline
some of the best ways and parameters for measuring the level of customer satisfaction.
The other way of ensuring exceptional customer service and experience is maintained is by
knowing the right way to survey the customers (Setiawan & Budi, 2014). There are numerous
ways and platforms of surveying the customers to get their feedback on their experience.
However, not all the survey methods are suitable or can work for every business (Setiawan &
Budi, 2014). The nature of the survey should be determined based on the nature of the products
and services. However, this study did not reveal how to suitably determine a survey method.
A study by (Bueshken, 2009) reveals that it is very crucial to keep an eye on what the customers
are saying about the business on social media. Similarly, it is important to keep an eye on what
the customers are saying about the industry on social media. Therefore, it is very crucial for a
business to build and maintain a serious and working online social media platform for better
customer experience (Bueshken, 2009). The study further suggests that customer analytics and
intelligence can be applied to such information to determine whether there should be an
improvement. Similarly such feedback will help the business to know their position compared to
the competitors in the industry (Bueshken, 2009).
Methodology
This section describes the analytical tools as well as the analytical techniques that have been
conducted to meet the objectives. Similarly, this section also outlines the research design, the
model evaluation metrics, the working data, and the model building process. The analytical tools
that have been used are Microsoft Excel and IBM SPSS (Statistical Packages for Social