Initializing segmentation technique will improve email click-throughs and conversions. This strategy is called RFM and this has been used widely by direct marketers for years in identifying their best customers. Learn for yourself how this wonderful technique works and how this segmentation technique will make your email marketing successful.
RFM: What is it and what it can do to improve your marketing promotions?
RFM means Recency, Frequency and Monetary.
- Recency – is WHEN the customer placed the last order.
- Frequency – number of orders the customer has placed in a particular time period.
- Monetary – the amount of money the customer spent.
The customers who frequently shops and spent a lot are the ones who are more likely to respond to your next marketing promotions rather than those who have bought stuff a long time ago.
RFM allows organization to dramatically improve responses rates. They do this by sending offers exclusive only to those who are likely to make a purchase. But before the send out some of their promotions, they do a customer lifetime value analysis first in order to identify who among these customers are likely to buy.
Myths that email marketers should know:
- Sending lots of emails to everyone is not a bad idea since email is cheap. There’s really a big problem about this issue. When subscribers receive multiple emails and they didn’t find any relevance with the content, they become less likely to reply to any of your messages and there’s a big chance that they will report your messages as spam. When this happens, this will lower your reputation score and deliverability problems will occur. ISP’s will send your messages to the junk or spam folder instead of sending them to the recipient’s inbox.
- Sending to a bigger list will lead to a better response rate. Sending to a bigger list doesn’t guarantee to generate a higher rate of click-throughs. The truth is, spam complaints could be possibly higher. Higher response rate can be guaranteed only if you deliver targeted messages and relevant content to your smaller lists.
Email Lists RFM Segmentation Application
The advantage of email marketing is that it enables you to measure customer interaction that direct mailing. Aside from old-fashioned RFM parameters, other metrics can be applied also in performing RFM analysis but this will only depend upon your email database and your marketing strategy.
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RFM Category |
Web-Analytics Metric, CRM, Valid Email |
|
Regency |
When was the last time the purchase was made The date of the last email click-through The date of the last lead generation conversion
|
|
Frequency |
The number of lead generation conversions over a particular period of time. The number of times each recipient clicked over a time period. Number of times each recipients purchased |
|
Monetary |
Total amount spent in a particular time period. Total estimated value like revenue per lead and cost per lead in a particular time period. Cumulative engagement score based from different metrics over a time period.
|
Once you’ve figured out which metrics would me more useful to your business, you can then apply to your email database the system that shows purchase or conversion history such as web-analytics tool or CRM.
Now you are ready to apply RFM segmentation.
Since RFM have been widely used for so many years in direct marketing, many statistical analysis tools produce ready-made RFM reports. Even if you don’t use statistical analysis tools, there’s no need to worry. RFM doesn’t require substantial data-driven analysis since it is based on past customer activities.
Another way to do RFM is to organize your list of recency. Put it in order from highest to lowest. Then next is dividing the list into five equal segments. You should give the top 20 percent a recency score of 5, the next 20 percent a score of for, and then next 20 percent a score of 3 and so on. Each recency segment is then organized according to frequency, and divided into five equal segments. This will give the result of 25 recency plus frequency segments. Then next is organizing each segments for monetary and just like recency, it is also divided into 5 equal segments giving you 125 segments that have RFM scores starting from 555 to 111.
If you know your database real well, you can use groupings such as “purchased in last month, last six months or greater than six months”. It depends on you on how to construct your RFM classifications.
Sending Out Diverse Types of Email Promotions to Different RFM Divisions
Once you have set everything in order in order in your database records and assigning specific RFM classification on all of the records, running a test campaign on 10 percent of your list should be done to identify which RFM groups to send mail to.
Doing a break-even analysis is usually done in traditional direct mailing to identify which mailing recipients are cost-effective. Take a look at the test group response rate for each RFM segments. Sending our different types of messages and observe which RFM segments respond best to a particular campaign and stop sending out messages to those certain promotion types that fail the break-even test.
You can also compare the conversion rates of different RFM segments instead of applying the break-even metric. This would make it easier for you to decide where to send your future campaigns.
Types of Ideas That May Work Best With Different RFM Segments
- High Recency, Low Frequency and Low Monetary – Includes your newest customers or subscribers. Giving them welcome offers, product usage tips and other information for newbies would be the best thing to do.
- Low Recency, Low Frequency and Low Monetary – When using direct marketing, those subscribers who doesn’t participate well is not worth the time for sending mails whereas in email marketing, they would be a good target for a re-opt-in promotion. There is no way that you still have to retain them in your new list if they are no longer interested to receive messages from you.
- High Recency, High Frequency and High Monetary – Giving away rewards for loyal customers with exclusive email promos. Some offers to their best customers’ free shipping to their items or even freebies.
Sending Out Compelling Messages to Your Email Subscribers by Using RFM
RFM segmentation is a very simple method to break down your email list based on subscribers past activities. Let it help you towards targeted email with conversion rates that are sure to rise.
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