RFM segmentation - business use

In the previous article on RFM segmentation you learned how to find the RFM score of each customer and them how to assign them to one of the 11 RFM segments. This article will tell you how to approach your customers once you have them divided. The recommended approach to all 11 segments will now separately be explained:

Lost customers

These customers generate a very small percentage of your overall revenue. This segment has the lowest priority. Do not waste resources on them as they are very unlikely to come back and even if they did they are unlikely to spend a lot.

Hibernating customers

Probably only around 5% of your revenue comes from this segment. The customer value of members of this group is below average. Do not overspend on advertising for this group as the return on your investment is not likely to be positive. They can be included in your standard communication, but be careful with it because some of their emails work as spam traps and approaching them may result in your decreased email reputation. Read more on Email deliverability.

Cannot lose them

The customer value of the members of this segment is above average but they have not made a purchase recently. It is likely that they continue to buy products from the same category as they did in the past but started to purchase from your competitors. You should prepare a discount and gift campaign for them. You've probably already earned high margins from their purchases which should give you the confidence to invest in them so that you get them back as your customers. The campaign should involve recommendations based on their previous activity, consisting of both items purchased and items viewed. You should also approach them with the new and popular products they had been previously interested in. Often these customers had some negative experience based on which they stopped buying from you. You should try to find the reason, for example by asking them directly in an email and then giving them a gift if they respond.

At risk

This group is very similar to the "Cannot lose them" segment but its members have made a purchase on your website more recently. This segment might be even slightly more valuable than "Cannot lose them" as the approached customers from these group are more likely to respond. Approach this group as you did with the previous segment but based on the profit-difference between them decide which of these two groups deserves more of your resources for the campaign.

About to sleep

The customers in this segment have not made a purchase in a relatively long time but not to the extent that they are unapproachable. Hence, their interest might possibly be revived and you can try to motivate them to make another purchase by offering discounts.

Need attention

Core customers with good or above-average R, F, and M indicators score lower on one of the indicators, most probably the purchase frequency. They represent a good value for your business, and you should focus on bringing them back.

You should communicate to this group the time-limited promotional campaigns that are most effective when displaying countdown banners. Use product recommendations based on their behavior on the website. You also need to show your customers that your selling proposition is unique—show all the important advantages of choosing your brand with personalized banner use cases catering to the specific wants of the particular customer.

Promising

These customers bought from you relatively recently for high value but they have not been frequent customers - possibly this is their first purchase from your website. You need to motivate to make another purchase because if they do it is probably going to be another purchase of high monetary value. High profits from the first purchase give you the resources to invest in these customers so that you will be able to retain them and turn them into regulars. Inform them about special offers related to their high-value purchases. It is useful for you to analyze the members of this group further and find out what motivated them to make such a high-value purchase, mainly if more customers bought the same high-value purchase.

New customers

These customers bought from you relatively recently for average or below-average price and they have not been frequent customers - possibly this is their first purchase from your website. You do not know these customers yet so they still have the potential to turn up as highly valuable. You should offer them discounts for an additional product in the basket to see whether they are the kinds of the customer to whom you can upsell. You should also try to get their consent for your newsletter so that you can include them in your regular marketing communication. You can also send them satisfaction surveys concerning their recent order so that you get a better awareness of who these customers are and what they want.

Potential loyalists

These customers already bought from you more than once but the size of their basket was not too big. Try to motivate them to increase the number of items in their cart by showing them cross-selling recommendations.


Loyal

These are very active and therefore very valuable customers. They possibly account for up to 20% of your revenue. You probably have a very good ability to communicate with them as they visit your website regularly and most of them subscribed to your newsletter. Your goal with this segment is to make these customers even more satisfied to preserve their current behavior. As you know these customers well use highly personalized communication. Prevent the tendency for spamming them, propose fewer products but the ones they are very likely to be interested in. You can try to motivate them to share their positive experiences online as they are relatively likely to do so after being asked.

Champions

These customers are responsible for a big share of your revenue so put a lot of effort into keeping them happy. Give them something extra that the regulars do not get, for example, limited series of products or special discounts to make them feel valued. Use communication similar to the "Loyal" segment. You might make them your ambassadors, giving them a margin of your profits for bringing you, new customers. You should also regularly ask them for feedback as they might now your products and services even better than you.