Put RFM segmentation into practice in your business
Before setting up an RFM segmentation, the reference period must first be determined. Depending on the purchasing cycle and the average rate of consumption of your customers, it could be a period of a month, a quarter, a semester, or even more.
A. Calculate the RFM score
Once the period has been defined, it is then possible to calculate the RFM score according to the recency (the number of days since the last purchase), the frequency (the average purchase frequency over the period) and the monetary value (the average basket over the period).
Different RFM calculation methods can be used to normalize RFM values on a scale of 1 to 5. Below are the two most common methods.
1. SIMPLE FIXED RANGE
With this method, you define a range for each score yourself. Thresholds are based on the nature of your business.
Example: According to Purchase Recency (Range / Score)
- In the last 24 hours = Score 5
- In the last 3 days = Score 4
- During the current month = Score 3
- In the last 6 months = Score 2
- More than 6 months = Score 1
Easy to implement, this method has one main “flaw”: its fixed character.
You will need to review and adjust the ranges manually as your business grows to keep the RFM score relevant.
This method consists of dividing your data into 5 equal parts. This method involves slightly more complicated math. However, this solves the problems posed by the method of simple fixed range. The quintile method is scalable, it works with any sector. Scores are automatically assigned to customers.
This is the method we recommend you use to calculate the RFM score.
B. Improve the performance of your email campaigns
You can integrate your RFM segments into your emailing solution (like Dialog Insight, for example) and use them to create targeted campaigns and scenarios for each segment.
C. Improve customer loyalty and user engagement
If you have a loyalty program, the “Potentially loyal customers” segment is an interesting segment to target. Their experience with your products and services should be enjoyable and memorable. Offer them time-limited promotions and there’s a good chance they’ll buy. Send them educational content to improve their engagement with your brand.
D. Reduce churn
Hibernating customers and at-risk customers are the two segments you need to pay special attention to. Send them personalized emails to try to reconnect with them. You can also offer them discount coupons on repeat purchases or send them customer surveys to prevent them from going to the competition.