Using RFM in E-Mail Marketing
One of the most popular and efficient tools used by marketers for understanding their audience and customers better is the RFM analysis. Those of you who work with e-mail have a lot to gain from this type of analysis when you plan your mailings. We will show you how!
RFM is the abbreviation for Recency, Frequency, Monetary Value. The RFM analysis gives marketers a way of weighing different customer groups against each other and determining what marketing resources should be allocated to each segment.
Let us see what an RFM model looks like! There are normally three measuring points:
How long has it been since the last purchase?
How often do my customers buy something from me?
What is “Monetary Value”, i.e., the overall economic value of the customer?
You place your customers in a matrix in order to gain a good overview of what sales to them look like. Once you have conducted an RFM analysis, you can see which customers are most valuable, both when it comes to earnings and as brand ambassadors – they are the ones who will rank high at all measuring points.
At the same time, you can clearly see who needs a push to get activated.
What can you gain from doing this?
The point for you as an e-mail marketer is that you can use the knowledge of how active your customers are in order to communicate with them better. You can identify your brand ambassadors; you can see who is on his or her way of being lost as a customer – and you can see who has development potential.
The RFM analysis can help you understand your target groups and help you draw up messages and strategies directed at each individual customer group.
It is now time to describe RFM’s practical use in e-mail marketing!
This is an example of what a matrix looks like:
This article is dedicated to three groups and to the type of communication that could be most suitable for them.
Recency = 0 to 6 months, Frequency = 1 purchase
The 21 persons in the group above are completely new customers. It has probably cost quite a bit to attract them as customers, so it is best to immediately start working on keeping them as such. The overarching goal is to entice them to make another purchase.
Do not forget to add in “Monetary Value” – the economic value of the customer. In this particular case, customer value is equal to the order value since the purchase is only one. If the amount is large, then it is probably not so appropriate to send a message enticing to a new purchase so soon after the first one. However, there is one group that is perfect for offers of different types of upgrades, for example, warranty extensions.
This group should get a lot of attention and should be subject to a life cycle campaign after the purchase has been made.
Recency = 7 to 12 months, Frequency = 4 purchases
The main purpose of the RFM analysis is to place all customers in different target groups that you can subsequently work with to ensure that they rank as high up as possible in all three categories. This group is very close to being in the best segment for both R and F, but needs a push to really get there.
The “fours” may need a challenge to shop again – maybe in order to get loyalty points, contest prizes or the like. They have demonstrated before that they like your products, so all they need is a little push or an offer in order to move on to the next group.
By studying their “Monetary Value”, you can find out which products and offers will be appreciated most by the group. If the customers regularly buy low-value products, offers of products of a similar value will be appreciated the most. But perhaps you should also include a couple of offers of higher-priced products in order to make them even more valuable customers.
Recency = 25+ months, Frequency = 5+ purchases
The customers who have shopped more than five times should be very valuable to your operations, naturally depending on the value of their previous purchases. If their “Monetary Value” is also higher than that of other customers, but they have not shopped within more than five purchase cycles (or subscription periods), it is about time to find out why.
Did they have a poor shopping experience the previous time? Or are they no longer part of the target group of your products? By asking these customers what has changed, you can gain valuable knowledge which will help you make better forecasts of future purchase behaviour.
It is good to understand that your product at some point will no longer be right for certain customers. The knowledge as to why will help you design and tailor your marketing message.
Have you conducted an RFM analysis? Get in touch and tell us about your experiences!
About the author
Kelly Lorentz has extensive experience in strategic counselling in a number of major e-mail marketing companies in the USA. Her profound knowledge of digital marketing – and, in particular, e-mail marketing – makes her the perfect adviser when it comes to helping companies and organisations find the right path in marketing matters.
Kelly works at Apsis on developing strategies for customers who want to optimise their e-mail marketing and increase their ROI – for example, using RFM analysis.