How RFM Segmentation Can Help Retailers Re-engage Better?
Engaging your customers at the right time, place and with the correct message can guarantee better profits.Customer insights play a crucial role in knowing your customers better and targeting them with relevant information.
Instead of a bulk blast, you can send personalized messages that attract their attention and help you keep them coming back to your store.
RFM segmentation technique is a highly effective way of automatically building customer segments and knowing your best customers.
Here, we will try to define what RFM segmentation means, how it can help retailers and what are the outcomes you are likely to get.
Introducing RFM Segmentation
Broadly, RFM segmentation helps identify customers with similar spending habits and put them into a single cluster. There are three factors that govern this segmentation.
When was the last time the customer visited your store? You have to calculate this time period from today.
Let’s say their last visit was yesterday, then it is a very recent visit. Say, a customer purchased from your store one month ago, it will still be considered a recent purchase.
However, if they have not visited your store in the past one year, then their recency score would be very low. They may not be your active customer.
The number of visits to your store also determines if they are engaged with your business or not. Say you are a coffee shop, and there is a customer who visits your store almost every week. Their frequency is definitely high. They are highly engaged, and would surely recommend your brand to others.
However, if a customer has not returned after their first visit, which was months ago, they are not actively engaging. They could have forgotten your brand. It is important to re-engage with them, and make them come back to you.
However, if you didn’t know the frequency or recency, you wouldn’t have known these details for your customer or how to engage them further.
How much do they spend at your store per visit? This will also give you an insight into the average order value per visit and the total customer lifetime value.
Note: Customers that have a higher frequency, recency and monetary score will be your most active customers. However, if the scores are low, you might want to engage them with some incentive or communication.
Why Do You Need RFM Analysis?
Knowing your customer segments can help you predict potential customers better. It will also help you devise apt re-engagement strategies and evaluate the lifetime value of a customer.
We have identified a few benefits of RFM analysis that will help you realize the importance of this segmentation.
- Helps you devise an engagement strategy
Each customer segment behaves differently. The way they engage with the brand is completely unique. For example, the loyalists are your most active customers. They are your repeat customers. The kind of communication or engagement strategy that you have adopted for this segment seems to be working.
This will guide you towards creating a defining engagement strategy for your inactive or lost customers. You can understand what kind of products they preferred when they visited, what they bought and their spending habits. This will help you craft the exact strategy that can win them back.
- Target using relevant communication
When you send out communication, it should be highly relevant and useful to the target segment. You will know what they are looking for, when you have the segments and their habits defined.
Automated segmentation using RFM can help you know what the engaged customer looks like and how much they spend. Your communication strategy will depend on their preferences and habits. Similarly, to win the lost customers look at the value they provided while they were your customers. It will help you know what winning strategies you need to invest in.
The RFM Segments