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To say COVID-19 is changing consumer behavior would be a massive understatement. People’s lives have been turned upside down over the past few months. With the precautionary closures and restrictions, people’s old habits are gone and new ones are being formed. For many marketers in the restaurant and retail industries, this has had massive implications in how their customers are purchasing from them during the pandemic, and how they’ll continue to purchase once we have a vaccine and move to what will be the “new normal.” So how do marketers figure out what’s happening with their customers right now so they can get the right messages to the right people at the right time. Enter the tried and true RFM Analysis (with a COVID-19 twist).
Using Transaction Data to Understand Your Customer’s Recent Behavior Shifts
The RFM Analysis is a data modeling technique that helps to determine customer value at a point in time. RFM stands for Recency, Frequency and Monetary, three key indicators of customer value.
Recency
The time between your customer’s last order and the report date. The shorter the period of time between the last purchase and today, the more likely the customer will keep the brand in the consideration set.
Frequency
The total number of orders the customer had in the RFM Analysis time frame. For everyday consumables, more is better. For items that have predictable purchase cycles, or seasonality, frequency provides key dates to plan for.
Monetary
The average amount per order for all orders during the analysis time frame. Conventional wisdom says to protect those high spenders, but sometimes higher ROI moves are found shifting people from mid-range spending segments to higher levels through personalized messaging and offers.
The process of doing an RFM Analysis on transactional data gained traction back in the mid 90s when looking at direct mail segmentation strategies. RFM Analysis techniques still hold true today as some of the most effective ways to segment your customer list into more targetable groups for better personalization and engagement.
Performing an RFM Analysis involves collecting the key transactional data for the time period being analyzed. For marketing purposes, at minimum you’ll need these data points for each transaction row: Email and/or SMS ID, purchase date and purchase amount. This data allows for running the RFM analysis which scores all unique Email/SMS IDs.
The resulting RFM Analysis divides the data into a group of segments with associated attributes allowing marketers to quickly sort customers based on their RFM scores, giving visibility into the most valuable customers, customers who are valuable but may not be purchasing a lot, customers who haven’t purchased in a long time, and so on.
Common Targetable RFM Segments From The RFM Analysis
Performing an RFM Analysis involves collecting the key transactional data for the time period being analyzed. For marketing purposes, at minimum you’ll need these data points for each transaction row: Email and/or SMS ID, purchase date and purchase amount. This data allows for running the RFM analysis which scores all unique Email/SMS IDs. The resulting RFM Analysis divides the data into a group of segments with associated attributes allowing marketers to quickly sort customers based on their RFM scores, giving visibility into the most valuable customers, customers who are valuable but may not be purchasing a lot, customers who haven’t purchased in a long time, and so on.
MVP/Champions
These are your best customers and you should let them know that they’re valued and appreciated. When looking at the 80/20 rule, these customers likely provide a majority of the revenue for your business so keeping them happy should be a marketer’s top priority. Personalization and custom offers are frequent tactics for engaging this important group.
New Big Spenders
Onboarding new customers is a key to successful business, but new customers who also spend significantly more than average spenders deserve some extra attention. The idea here is to shift these people from New Big Spenders to MVP/Champion status. Oftentimes, the same marketing plays used for MVP/Champions are appropriate for this group.
Frugal Loyalists
Customers who are regular repeat buyers that don’t spend a lot are Frugal Loyalists. The goal with this segment is to get them to spend more on each transaction. Then to move them into the MVP/Champions segment. Do so with through promotion bundles, add-on recommendations, etc.
Lost Spenders
Once big spenders who have not made a purchase in a long time. Customer churn cannot stop entirely. However it is worth focusing on trying to win back previous big spenders due to the potential high ROI. A key strategy to winning this segment back is through personalization. Use your transactional data at the product/service level to drive your messaging and offers. Remind this group why they bought from you in the first place.
The COVID-19 Twist to Today’s RFM Analysis
With all of the change caused by the pandemic, marketers want to see how their customers are now behaving with restaurant and retail restrictions prohibiting full in-store capacity, online order moving front and center, curbside pickup for contactless transactions, etc. That’s where additional transactional data can help shed light on how your customer’s behaviors are changing.
Taking a look at the MVP/Champions segment, do you have transaction data available to show you whether their purchases during the pandemic have changed from in-store purchasing to online purchasing? How do the purchases differ? Are they larger and more “bulk” or smaller and more “on the go”? Looking closely at this data will inform the messaging strategies to keep these best customers engaged for the long haul.
What about the new Lost Spenders? Have these people stopped purchasing from you during the pandemic entirely? It’s time to win them back by looking closely at what they purchased before, and reframing offers for today’s environment. Thursday night dinner at a restaurant with the family evolves. It becomes, “Let Us Take Care of That For You” carryout dinner special for 4 with curbside pickup and a contactless transaction. You’re then giving them what they want, but on their new COVID-influenced terms.
Implementing an RFM Analysis
The opportunities are endless, but finding them starts with the foundation of the RFM Analysis. And then looking deeper into available data, you can determine what your segments are doing differently.
If you would like to talk more about your customer data, CRM or Loyalty program, or digital marketing efforts please connect with us by completing our contact form.
