There are dozens (hundreds?) of ways to know your customer (KYC). Some brands love personas. Others will get to know shoppers IRL in stores. For marketers, there’s one foundational KYC tenet: RFM.
RFM – Recency, Frequency, and Monetary – is everyday segmentation.
In the old days of direct marketing, marketers faced a considerable cost constraint. Postage and printing carried real costs, and your budget would allow you to ship only so many books (catalogs) and cards (postcards).
Carefully selecting an audience for a mailing was a battle. RFM was your ally.
Typical RFM schemes saw quintiles by part (R, F, and M), with the most audience allocated at the intersection of the top few Rs, Fs and some remnant Ms. The top cells earned the full glossy catalog. Those less qualified customers (with low RFM aggregates) would likely be downgraded to a postcard, and usually held out of the off-season mailings entirely. Testing - offers and segments - was a mandate. While over-indexing on recency (and leaning into seasonality) was typically the best way to ensure great campaign ROI, maximizing return meant winning on the edges of segments.
Segmentation, and largely RFM, is why those folks at legacy catalogers (LL Bean, Eastbay, and seemingly 1 in every 2 residents of Columbus, OH) are such fantastic and pragmatic marketers.
But… when we changed channels and turned to email as the predominant outbound customer communication vehicle, some of that segmentation rigor retired.
Without it, we’ve lost an important constraint - cost. Cost was a forcing factor to prioritize audience segments, and - critically - to be clear on audience goals.
Suddenly, we had democratized our audience - we simply sought conversion from the pool. This cost efficiency cut into effectiveness. We largely stopped meaningfully segmenting our audiences.
We segment our known shoppers less, and I’d speculate that we’ve come to rely on revenue from new shoppers more than in decades past.
The tenets of a successful customer marketing program remain largely the same: maintain great shoppers’ spend, grow new (or recent) shopper revenue, and even revitalize lapsed shoppers.
Your efforts against each of these objectives must be unique. A one-for-all program leads to a loss-of-all.
There are exceptions and complements; triggered behavioral messages are far easier to execute today than in the ‘00s, and are helping brands meet marketing goals.
But, the everyday power of segmentation has eroded.
Fortunately, the maturing of the DTC market, and namely the challenging acquisition economics has sent the pendulum back towards being smarter about marketing to your known shoppers. A wave of analytics tech is helping early adopters shift towards slicing audiences up. Surfacing segment-level performance is possible, and necessary.
As we start to think about 2024, brands must bring (back)the rigor.
How?
Re-appropriate segment cost constraints for your known shoppers. Allocating cost caps when acquiring customers is a standard. Applying that same discipline towards known shoppers should be. In doing so, brands can look at their audience not as one shapeless blob, but as a set of similarly behaving shoppers.
This opens up a far more relevant approach to customer outreach.
RFM provides a clean way to model your audience. You may choose another approach to modeling. Either way, seek to qualify the shoppers for the message and then, apply personalization to get the content right.