Introduction
In this series of articles, we will introduce the steps to create customer segments using ECPower and how to concretize actions towards improving CLV (Lifetime Value). If you have just started using ECPower or are considering using it, please feel free to use these articles as a reference.
In our previous article, we explained how considering a customer journey based on needs and integrating it into customer segmentation allows for tailored marketing content for the right customers, fostering loyalty.
In this article, we will discuss how to incorporate the concept of "RFM" into the customer journey to optimize the timing and content of marketing communications.
For more information about ECPower, a customer segmentation tool for EC marketers, please see the link below.
Incorporating RFM segments into the customer journey
Basics of RFM Segmentation
RFM analysis breaks down customer purchase behaviors into three main elements: R for Recency (days elapsed from the most recent purchase), F for Frequency (number of purchases), and M for Monetary (total purchase amount). This acronym, RFM, is widely used.
By scoring customers from an RFM perspective and segmenting them, you can implement marketing measures tailored to the purchasing behaviors of each segment.
Generally, customer loyalty is expressed by F or M, and customer engagement (risk of churn) is expressed by R, often leading to a two-axis analysis.
For instance, you can create nine segments as shown below.
One of the strengths of RFM is the ability to prioritize customers and optimize the content of communication.
For example, Active customers haven't spent much time since their last purchase. So instead of sending an email directly leading to the next purchase, it might be more appropriate to send a thank you email or share content on how to use the product or the brand story.
At Risk customers are those who you would want to make their next purchase soon. Hence, marketing measures that aggressively carry out promotions would be suitable.
Churned customers may have reduced brand engagement or might have shifted to another brand. Although the priority might be relatively low, careful communication design is needed.
Understanding the shortcomings of RFM segmentation
While RFM is a very easy-to-understand framework, it does have some drawbacks.
Firstly, as we have mentioned throughout this series, if you only consider the step to becoming a loyal customer based on F (frequency of purchase), you can't visualize the specific needs of the customer. Therefore, the marketing measures generally recommended for each RFM segment often tend to be technical methods lacking in specificity.
Moreover, there's an issue regarding R (days since the last purchase). Depending on the customer's needs, the appropriate R to set will vary.
The example of the local bakery that we've been discussing is illustrative. The number of days at which you would determine there is a risk of churn would differ for a customer who "buys a sandwich every morning as a habit" and a customer who "buys sweets for their family on Friday evenings before heading home". In the former case, if there is no purchase for about five days, you might wonder if something is wrong, whereas in the latter case, it may not be necessary to be sensitive to the risk of churn even if two weeks pass.
How to think about combining RFM segments and the customer journey
So far, we have looked at the advantages and disadvantages of RFM segmentation.
As some of you may have guessed, in our previous articles, we have classified loyal customers according to their needs and defined a customer journey for each.
In other words, we have already been able to create a "horizontal axis" with higher resolution than classifications by F or M. All we need to do is think about
the appropriate R threshold for each customer journey corresponding to each need, and assign the three statuses of Active, At Risk, and Churned, allowing us to incorporate the strengths of RFM and communicate at the right timing.
If we were to represent this in a diagram, it would look something like this:
While considering the characteristics of each customer segment, it would be beneficial to set appropriate thresholds. For example, it might be best to set a shorter period for At Risk among loyal customers, while on the contrary, it might be appropriate to set a looser one for first-time customers.
Creating Customer Journey Segments Using RFM in ECPower
With ECPower, you can further subdivide your customer segments for each customer journey you have already created using RFM.
For example, if you were to classify the segment named "Potential Rum Baba Fans" into three statuses, you would set up conditions like this.
Nearly half of the total 346 customers are already classified as Churned. In the case of this store, the initial step would be to consider marketing measures for Active or At Risk customers on a priority basis.
Ideas for Measures against Each Segment of the Customer Journey
From here, we would like to discuss what kind of marketing measures can be considered at each step of the customer journey incorporating the RFM segmentation approach.
Let's start by organizing the measures using the example of the bakery's customer journey we've been explaining so far.
Encourage Repeat Purchases for First-Time Customers
First, let's consider marketing measures that would encourage first-time customers to make a second purchase.
Active segment per product of initial purchase
- Email marketing to encourage repeat purchases of the same product
- Content about how to use and enjoy the purchased product
At Risk segment per product of initial purchase
- Distributing coupons to encourage repeat purchases of the same product
- Promotions of product lineups different from the previous purchase
Customer segments that initially flow in from non-bestselling products
- Promoting the lineup of best-selling products
Promotions and Cross-Selling for Non-Purchasing Customers
If you have products that are often repeated by customers, you could consider promoting these to customers who haven't purchased them yet.
If certain products are often purchased together, try promoting cross-selling to customers who have purchased one of them.
Active & At Risk customer segments who haven't purchased bestselling products
- Promoting the bestselling products
Customers who have purchased one of the products that are often bought together
- Cross-selling promotions
Further Increasing Engagement with Repeat Customers
Customers who have bought the same product more than once are a group that matches specific needs and has the potential to become fans or loyal customers.
Instead of simple coupon distribution and promotions, communicating through things like the origin story of the product, brand story, and ways to enjoy the product – not directly aimed at sales – can lead to further increasing engagement.
Customers who have purchased the same product twice or more × Active customer segment
- Distributing content that increases empathy and a positive impression of the brand
- Providing information about how to enjoy the product
Customers who have purchased the same product twice or more × At Risk customer segment
- Product promotions at the appropriate timing (around the average re-purchase interval)
Re-engaging Churned Customers
For repeat and loyal customers who are in Churned status, it's important to set up careful communication rather than sending a lot of emails blindly.
For example, you could create segments for each product that was often purchased, send messages at the timing of new products in that category, distribute special coupons (Win back coupons), etc.
Since they're customers who have repeated once, if they come back, there's a high chance they'll become good customers again. Send a welcome back email to the purchaser immediately, and take care in designing communication.
Repeat & Loyal customers × Churned customer segment
- Sending messages at the timing of new product releases
- Distributing special coupons
- Sending welcome back emails and coupons to campaign buyers
Further Increasing Engagement with Loyal Customers
For loyal customers who could be called fans of the brand, let's take measures to further increase and maintain engagement.
These are customers who are likely to repeat without prompting from us, so preparing exclusive benefits rather
than sending one-time coupons could lead to increasing brand engagement. It may be effective to add words like "only sending to a limited number of people".
Specific products × Loyal customers × Active/At Risk customer segments
- Conducting pre-sales of new products
- Sending special gifts or novelties
- Distributing special coupons
Conclusion
How did you find it?
By defining loyal customers according to their needs and creating a customer journey, then adding the concept of RFM, you can carry out marketing communication with the appropriate customers, at the right timing, and with the right content.
The resolution towards customer segments will increase, and the content of communication (for example, the text of emails) should also become easier to imagine.
In the next article, we will explain how to link customer segments created with ECPower to other marketing tools.
