Christopher wants to know why some of his customers left. He recently did an RFM analysis. He should focus on customers with the RFM score
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RFM, in terms of analysis, stands for "recency, frequency, monetary." It grew out of a bygone era in marketing - when the most effective communication channel was direct mail. Some of you may remember those days.
It's a simple way of segmenting your existing customers based on the sales data you already have in the system. With RFM analysis, all you need to know is:
When a customer last bought something
How often they buy things
How much they spend
That's it. That's the original makeup of RFM analysis. Today, the technique is still widely used. It comes in a few different types of forms. By itself, it is still potent. It can also make up the framework of a granular segmentation strategy. RFM analysis is also adapted to focus on things like engagement.
However, the basics of RFM are still those three building blocks: recency, frequency, and monetary value. I'll outline some of the things you need to know about RFM here, but to go deep into the strategy of RFM, I highly recommend checking out this .
First, let's break down the three aspects of RFM.
Recency is the last time the customer bought something. For a digital marketing campaign, a business can analyze the most recent website visits, unique sessions, number of pages visited, or total logged-in time.
Frequency details how often the customers come into the store. The digital activity also counts here. Look at the number of unique sessions, the number of pages visited, or total logged-in time.
Monetary value details how much the customer has spent in the past. Digital analysis can also include metrics like engagement if a meaningful value is assigned. When combined, these details provide some powerful insight.
It's essential that you start off the RFM process by defining your objectives. There are several different areas of insight you can gather through RFM.
Customer persona development through RFM allows you to define basic customer personas based on spending activity. You can use data to find out distinct subgroups and get a solid grasp of the customer base. Eventually, you can use it to max out conversion rates.
Increased marketing personalization is also one of the critical benefits of RFM. With this personalization, you are able to deliver the right message to the right person at the right time.
Maximizing lifetime value is essential with RFM. With it, you are able to encourage customers to spend as often as possible over each different visit. Recency, frequency, and monetary value are key parts of figuring out how to maximize that value.
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