The RFM methodology allows us to easily understand customers based on their purchasing behavior, although its biggest advantage is in the easiness of creating communications and campaigns for selected segments. When analyzing customers with the use of this method we take into consideration three values: Recency meaning the time since the last purchase, Frequency which […]
The RFM methodology allows us to easily understand customers based on their purchasing behavior, although its biggest advantage is in the easiness of creating communications and campaigns for selected segments. When analyzing customers with the use of this method we take into consideration three values: Recency meaning the time since the last purchase, Frequency which is the frequency of purchases, and Monetary meaning how much has the customer spent at our online store to date. It allows us to assess the customers, as well as his or her needs and expectations in terms of the communications we send. Thus, if we for example direct ourselves at the AT RISK segment, let us send campaigns with the newest products including discounts, and when fighting for a CAN’T LOSE THEM customer prepare a special offer which will remind them about our store.
When talking to customers and internally analyzing this methodology, we notice its biggest advantage is precisely in its simplicity – one segment, one action, one simple message. What has to happen for a POTENTIAL LOYALIST to become a LOYAL CUSTOMER? And what will make them become CHAMPIONS? Thanks to RFM we have a straight line of actions which we can execute in order to carry them „higher”. We act in accordance with a principle of taking small steps forward, by giving the customer one action to be executed. Whether this means increasing the average order value, frequency of orders, or finally making a purchase. When creating a campaign we always set one goal, without unnecessary complications. Let us go through four examples of campaigns addressed at selected segments, and analyze their communication as well as the goal behind each of them.
Fighting for CHAMPIONS
Despite the usually lowest percentage share of all customer base, the CHAMPIONS segment generates usually the highest income. When communicating with such a customer let us make that person feel honored and know that the offer is addressed specifically to him or her. Thus, such creations often include phrases like „Be the first to discover (…)” or „Specifically for you”. The goal of such an action must be to keep the customer within this segment (meaning reaching a transaction as quickly as possible), as well as maintaining a high level of frequency and order value.
Don’t lose CAN’T LOSE THEM
The CANT LOSE THEM segment consists of customers with a high potential, who we don’t want to lose from our store no matter what – as the name of the segment suggests. We communicate news in our store to them and emphasize how important they are for us! This segment is characterized by high Monetary and Frequency values so we don’t have to prepare a big discount offer! Just remind them about you!
Don’t let HIBERNATING fall asleep!
Customers marked as HIBERNATING constitute a group of the highest risk because we’ve already almost lost them! What can we do to bring them “back to life”? We should act aggressively! We communicate special discounts and products similar to those they’ve viewed. Apart from a standard e-mail communication in this case it is worth to include additional channels such as dynamic Facebook ads, sms campaigns or push messages.
And what about those we’ve lost? Bring the LOST “back to life”!
Don’t be afraid, not all is lost yet! The LOST segment, despite its name, does not have to mean the end customer relations. There is a chance to *attract* him or her to the PROMISING segment, from which we can take that customer to the higher segments. How to reach such a customer? Here we have to be aggressive, with large promotions in many channels. The discount should be high and include our bestsellers. It is worth mentioning that this segment usually brings 10% of retention. You can be aggressive in your action but analyse whether it is worth to use expensive marketing tools and ads.
How do we know that we manage to take customers between segments?
During our last all hands product – LIVE, Rafał Golan head of product have shown a functionality consisting in RFM FLOWS. When taking advantage of it we see how customers *flow* across segments in time and which campaigns helped us to take customers to higher segments. Only a deep analysis of the effects will allow us to **better understand** our customers and the communications which have an impact. Do CHAMPIONS react to cross-selling or up-selling? LOST get back to us after a campaign including bestsellers or news? We will discover that by executing campaigns, analyzing them, and observing the movement between segments of our customers.
CMO & CSO at edrone. VP of eCommerce at PHU A/B/C