Learn how Recency, Frequency and Monetary Value segmentation has been the standard for several decades.
The big challenge in database marketing is working out who to contact. This is called segmentation.
The standard method is called RFM where the database is split into segments according to Recency, Frequency and Monetary value. RFM can be done in many different ways, this is the standard format we use at Machine Labs.
The standard format will work for many of our clients but you can create your own custom segments if our structure isn't a good fit.
We have four recency segments:
|Current||0-3 months since last order|
|Recent||3-6 months since last order|
|Lapsed||6-12 months since last order|
|Dormant||More than 12 months since last order|
We have three frequency segments:
|Single Buyer||1 order|
|Multi Buyer||2 or 3 orders|
|Regular Buyer||4 or more orders|
Finally we divide total lifetime value of the customers into three segments:
|High Value||Top third of Lifetime Value|
|Medium Value||Middle third of Lifetime Value|
|Low Value||Bottom third of Lifetime Value|
Now that we have the RFM segments in place we could apply them in several ways:
- A refer-a-friend programme would work best with the happiest customers so we could target Current and Recent Regular Buyers and Multi Buyers.
- Retention offer flows could be aimed at any customer in the Lapsed segment.
- Extra effort on Retention could go to High Value customers who are in the Lapsed segment.
- Occasional Reactivation emails should go to customers who are Dormant.
- News without offers should go to Active customers to avoid unnecessary discounting.