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It’s no secret that engaged customers bring the most value to a business. But what is an engaged customer?
Marketers tend to consider email opens and clicks as good metrics for defining customer engagement. Some dig deeper into customer purchase history.
With the new Apple iOS 15 update coming in fall, marketers will have to give up the open rate as one of their measures. That’s because new privacy settings will give Apple Mail app users the option to shut off tracking of their email opens. Though this change isn’t universally applicable to everyone who opens an email, it’s still enough to make open rate data unreliable and therefore dead.
Instead of focusing on open rates, we encourage ecommerce marketers to adopt the RFM model.
What is RFM?
In short, RFM is a great customer segmentation method for identifying groups of customers with similar values. It’s based on, and stands for:
- Recency: How recently a customer has purchased from your store
- Frequency: How often a customer purchases from your store
- Monetary: How much a customer spends when purchasing
Quite simply, each customer is assigned a score for each value, resulting in a three-digit score. The scores are used to cluster similar-value customers into groups, ranging from most valuable shoppers to inactive ones.
Thus, as a marketer, you can adjust your communication and offers based on the RFM analysis. For example:
- Customers who bought recently may be more likely to respond to promotions
- Customers who buy frequently are more engaged, and thus perfect candidates for loyalty programs
- Customers who spend higher amounts are more apt than low-value purchasers to be receptive to upsell marketing techniques
It’s worth noting that RFM does not include customer demographics such as age, sex or geolocation. It’s purely based on purchasing behavior.
What are the benefits of RFM for ecommerce marketers?
RFM is a great way to upgrade your retargeting tactics. You can retain up to 23% more repeat customers.
Even more than that, an RFM score helps you:
- Focus on and improve customer retention and customer lifetime value
- Lower customer acquisition costs by making the money you spend go further
- Identify which customers are worth spending more time and money on retaining, and which are worthy of less effort
- Improve unit economics and increase profits
- Employ a true personalization strategy that yields higher conversion rates
These are just a few examples of how an RFM analysis can be used for retargeting and segmentation. With a bit of practice, you’ll start to see patterns emerge and know exactly the best offers for each customer segment. No matter where your customers fall on an RFM chart, there is a strategy that you can employ for reaching and converting them.
Omnisend’s approach to RFM: Lifecycle stages
An RFM analysis does not need to be complicated. You can use existing reports and tools which do the heavy lifting for you. You’ll just need to match the segment with the offer, send it out, and track the growth of your sales and retained users.
At Omnisend, we base our Lifecycle report on the RFM analysis. A Lifecycle Stage map gives you an easy-to-follow visual guide with a clear understanding of your customer base distribution. We dynamically assign each customer a lifecycle stage based on their historical shopping frequency, recency, and spend.
Here’s a breakdown of our lifecycle stages:
- Champion customers. These customers are your most loyal. They often purchase and spend more than average, and have purchased recently. These are the customers you want to keep happy above all else.
- Loyal customers. They always come back and will likely advocate for you. However, they don’t spend the most or aren’t the most recent of buyers. You can offer some discounts to encourage them to buy from you more regularly.
- Your high potential and can’t lose customers. These are your biggest spenders, even if they purchase once in a while. Since they have a low-frequency score, send out campaigns with incentives to draw them back more frequently, such as product recommendations based on what they’ve already purchased for driving up their average order value (AOV).
- Need nurturing. They bought once; now, it’s time to retain these customers and convert them into loyal customers and champions. Once they’ve made that initial purchase, put an automation workflow in place that suggests products they might enjoy
- At-risk and about-to-lose customers. These customers haven’t purchased in some time. It might not be worth putting a lot of time and effort into them. You might try implementing a lapsed-purchaser workflow to reengage them.
While the full scale and impact of the iOS 15 update remain vague, it is a good time for ecommerce marketers to re-evaluate retention strategy measurement and decrease reliance on email open rate tracking. Maintaining healthy email promotion tactics, personalizing offers, and adopting new segmentation and measurement practices will drive greater sales.