Get the Most out of your Customer Engagement with RFM

June 27, 2019
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You’ve heard it before, but all customers are not created equal. Sure, they’ve all equally interacted, deliberated about, and ultimately decided upon purchasing from your business, but beyond that they’re each their own entity, with their own needs, restraints, tendencies, and goals.

Therein lies the problem when it comes to customer engagement - How do you effectively nurture and engage with a customer base so diverse utilizing a singular focus and limited scope?

To be frank, you can’t, or at least, you shouldn’t. It's not only a very difficult task to ensure all of your customers are satisfied and have their needs met, but a costly one, draining your time and money and in an effort to please everyone, you can end up pleasing no one.

With that in mind, it’s imperative for your business to do what it can to more effectively approach your customers in a way that benefits and provides value to those that are engaged with your business and saves you precious time, money, and resources, diverting attention away from customers who aren't shopping and back to those that do.

RFM CAN HELP LEAD THE WAY

Back in 1995, Jan Roelf Bult and Tom Wansbeek devised a system that aimed to cut the inherent costs of printing and shipping direct mailings. The methodology they designed, RFM, broke customers down and scored them, based on three main factors, giving marketers a more cost-effective, objective means of utilizing marketing money.

The three factors utilized in RFM are:

  • Recency: How recent was their last purchase?
  • Frequency: How often do they purchase?
  • Monetary: How much money have they spent? What is their average order value?

Each customer would be scored based on those criteria and grouped into different cohorts providing marketers more objectivity and helping them make more effective, cost-efficient decisions. By utilizing this same practice, your e-commerce business can also more-effectively market to customers in a way that is more structured and efficient.

BREAKING THE PROCESS DOWN

The beauty of RFM lies in how simple it is to understand and work with. While there are some variations on how to assign values, we recommend keeping it simple and just sort all of your customers based on those three categories (Recency, Frequency, and Monetary).

Once you’ve sorted your customers in order for each category, break each of those lists down into 10 equal segments each and assign a score, from 1 to 10, to each customer with a higher score being a more recent, frequent, or higher-spending customer.

You can then organize and sort your customers based on their scores and even combine the three values assigned to each customer in those three categories and get an aggregate score.

GETTING DOWN TO WORK

The easiest way to handle all of this data at your disposal is to break your customers down into segments based on their scores. Each segment can be handled slightly differently, depending on your engagement approach and your business. For example, Monetary values may be worth more to you than Frequency, if you sell high ticket items or services.

Below we give a general idea of how to approach each segment:

High R, High F, High M

These are your most valuable customers and you should plan to show them the loyalty and dedication that they’ve already show you. Consider exclusive deals, special services, etc. and make sure you're investing as much time and resources into them as possible. While you're at it, reach out to and survey these customers in an effort to build customer profiles, if you haven't already.

High to Medium R, Medium F, High to Medium M

These customers are potential high-value customers and are on the cusp of becoming loyalists, they’re just not shopping with you as much as you’d like. They’ve made a few purchases so take advantage of that by offering discounts on products they've purchased, asking them to recommend products, and offer access to loyalty programs.

High R, Low F

These are your new customers and it’s time to put your best foot forward. Offer them guidance or documentation on recently purchased services or products. Send special offers on some products or services they've already purchased or you think they'd be interested in.

Low R, High to Medium F, High to Medium M

At some point, these customers were in love with your business but something happened and they haven’t purchase from you recently. Think about reactivating them with special offers on products they’ve purchased before, have them complete a questionnaire, and keep the communications personal.

Low R, Medium to Low F, High to Medium M

They've showed potential and you can try your best to get them back with some reactivation campaigns, new product or service offerings, or find out what went wrong by sending them a survey.

Low R, Low F, Medium to Low M

Hate to say it but these customers may just not be worth the time and effort needed to reactivate them. Feel free to try some reactivation campaigns, otherwise spend your time and money elsewhere.

AUTOMATION CAN HELP YOU FULFILL YOUR RFM STRATEGIES

You now have a potential roadmap but getting to your destination may not be that easy. With the advancements in artificial intelligence, marketing automation tools, like Samba, can help businesses segment and automatically optimize their marketing efforts across all channels.

When it comes to RFM segmentation, you simply plug in the data, initialize the communications, and the platform will execute campaigns, process results, and iterate new ones, all in real-time.

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