Improve your RFM scoring with email marketing

Yesterday, we had a great conversation with our technology partner, Windsor Circle, about ways in which email marketing can make retail eCommerce more profitable and more effective. One of the discussion points revolves around RFM analysis. If you’re unfamiliar with the term, Wikipedia defines it as:

RFM is a method used for analyzing customer behavior and defining market segments. It is commonly used in database marketing and direct marketing and has received particular attention in retail.

RFM stands for:
– Recency – How recently did the customer purchase?
– Frequency – How often do they purchase?
– Monetary Value – How much do they spend?

Most eCommerce systems use a model similar to this to score their customers on each of the three aspects, including the Windsor Circle platform and the WhatCounts platform. One of the great weaknesses of the RFM model is that it’s solely a reporting metric. RFM does not provide any meaningful predictive ability – it’s merely a signpost in the rear view mirror that tells you what happened. It does, however, give you the ability to segment your audience to understand different problem areas.

That brought the discussion to email marketing. What can email marketing reasonably change? It turns out that email marketing can add juice to each of the three dimensions in the RFM model. For example, let’s say you run an RFM analysis on your customers and find a significant segment of customers with a low R score. They’ve bought from you, but it was a long time ago. The logical and straightforward thing to do there is to solicit them to come back and buy something, anything. Target did a great job of this with a recent mailing that was in my inbox yesterday:

Reconnecting to boost RFM.

Their plea was simple: We miss you. We have coupons. Wanna reconnect?

Now, their real world store system isn’t tied into their email marketing system or they’d know I’m in one of their physical stores nearly every week, but the campaign itself was wonderfully executed.

Let’s say you have a frequency of purchase problem, a low F number. Maybe the customer comes by a lot, maybe the customer has bought big, but the customer window-shops much more than they buy. Can email marketing contribute to fixing that? Well, yes. The most logical thing to do is analyze your data for follow-on purchases. If someone comes to your golfing website and buys a set of drivers, then leaves, it’s reasonably logical to conclude that at some point in the not too distant future, they’re probably going to need golf balls. Send them an email with a special on golf balls and you stand a good chance of solving your frequency issue.

What if you have a monetary value problem in your database, a selection of customers who stop by a lot, who shop a lot, but don’t buy much (and thus have a low M number)? Can email marketing contribute to fixing that? Again, yes. You know who the frequent shoppers are. You know who doesn’t spend a lot. Pair up offerings that are slightly higher in value to go with their existing purchases and you’ll slowly, over time, increase the value of that customer.

Let’s say you know who bought an iPod recently. Let’s say you also know who among that audience of iPod shoppers also bought a pair of running sneakers. It’s logical to conclude that they might be using their iPod for fitness, in which case your next email should advertise a nice pair of wireless Bluetooth running headphones to them. Wireless sport headphones are more expensive than their wired counterparts, but if you have a strong possibility that the customer is using their existing purchases for fitness, then your email stands a greater chance of increasing the purchase of those headphones.

If you have the data, you can use email marketing to significantly increase the value of your customers while still providing them great value. The last caution with RFM analysis is that you can’t leave it entirely to the machines. You’ll get some great correlation data that will help make informed decisions, but you also need to do your own research. If you sell golf equipment, there’s no data analysis program in the world that can substitute for you visiting the local driving range or country club and seeing what customers are using in the real world firsthand. Combine your data with your research, and you’ll be well on the path to developing an email marketing program that delivers value for everyone.

As a side note, if you’re currently using eCommerce software like Magento or other shopping carts, and you’d like to engage the services of WhatCounts and Windsor Circle to automate the processes I’ve outlined above (a huge timesaver), their software makes it very easy to do so. We recently helped a customer increase their email marketing ROI by 900 percent in just three months using our combined platforms. Contact WhatCounts today to see if we can do the same for you.

Christopher S. Penn
Director of Inbound Marketing, WhatCounts

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