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RFM Segmentation
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Description of the Model

The segmentation is determined based on an RFM model. RFM stands for recency, frequency, and monetary value. Your customers are given scores based on: how long it's been since they last visited your store (recency), how often they have visited your store in the last 365 days (frequency) and their total spend at your store in the last 365 days (monetary value). These scores are all relative to the other customers at your selected store(s), so their ranges change as your customer base changes. These scores are then translated into the segments below:

 

Two additional segments, "Visitor" and "New Customer," contain customers that have only visited your store once. If that one visit was over 90 days ago, they will be in the "Visitor" segment. If they have been in the store within the last 90 days, they will be in the "New Customer" segment.

 

How the Model Works

Step 1: You first select how you would like to group your customer records. You can choose to group together email addresses or phone numbers. This means you will get a single record per email {or phone number} and we will sum up all the sales/visits for that email {phone number}.

Step 2: You then select how you would like to rank your customers. You have two choices: by store or all stores together. 

 

How to Choose:

  • If you choose by store customers will get a record for every store you select. Thus, if a customer shops in 3 of your 5 stores that email address will have 3 records in the table, one for each store.
  • If you choose to aggregate your stores together the customer will have one record in the table and we will sum up all the sales for that customer across all of your stores.
  • How do you choose? Based on the campaign type you are running...
    • If you're interested in running a campaign across all of your stores we recommend aggregating.
      • For example, if you're running a campaign for bonus points for all loyal customers across all your stores you will want to aggregate a customer's sales across all your stores.
    • If you're interested in running a campaign at a single store we recommend viewing the data by store.
      • If you're running a special event to re-engage At Risk customers at one of your stores you likely want to view the data by store so that you can see the customers' rankings based only on sales within that store.
    • You should also check with your SMS or email provider to determine how to best extract the data so that you can easily upload it to their system.

 

Giving you the choice gives you the most flexibility. However, it is important to know that a customers' segment will change based on your selections. Here's an example:
 

  • Let's say we have three customers: Jewel, Scott, and Liz
    • Jewel shops store 1 and spend $50 and later at store 2 spending $100.
    • Scott shops only at store 1 and spends $125
    • Liz shops only at store 2 spending $110.
  • If we segment by store the we find:
    • Store 1:
      • Scott is the top customer with $110
      • Jewel is the second customer with $50
    • Store 2:
      • Liz is the top customer with $110
      • Jewel is the second customer with $100
  • If we segment with both stores together we find:
    • Jewel is the top customer with $150
    • Scott is the second customer with $125
    • Liz is the third customer with $110

 

Segment Details

New Customers

New Customers have visited for their first time within the last 90 days and have not yet returned.

Recommendations: Encourage these customers to return to your store by using onboarding support such as reminding them of upcoming events, sales, or new items.

Visitor

Visitors have been in only once and have not returned in more than 90 days.

Recommendations: Offer a discount to re-engage them and hopefully turn them into more loyal customers.

Can't Lose

Can't Lose customers are your highest spenders that have lapsed in their return visit cadence. This group makes up a large percentage of your total store's revenue, it is vital that they do not slip away.

Recommendations: Pull out the big guns, offer personal attention and concierge level service to get them re-engaged. Highlight new products that would be of interest can be helpful.

At Risk

At Risk customers, similar to Can't Lose, have lapsed in their return visit cadence. While these customers don't represent your highest spenders they more than an average customer and as such would be beneficial to re-engage.

Recommendations: Offer targeted focused on re-engagement such as a discount on their favorite category.

Hibernating

Hibernating customers are those which spend smaller amounts at your store and have not visited your store recently. These customers are not as critical to your store's revenue as other groups.

Recommendations: These customers should be a lower priority for you than others. However, if you wish to re-engage this group do so offer discounts which encourage them to increase their basket size.

Loyal

These customers are some of your best, spending larger amounts and coming to your store frequently. By encouraging these customers to visit more frequently you can convert them to your top segment, Champions.

Recommendations: If you have a loyalty program reach out detailing their points needed to their next tier or reward. If you do not have a loyalty program try offers to encourage these customers to visit more frequently (ex. a free item on their 5th trip).

Champions

The Champions segment represents customers that have visited very recently, shop frequently, and have the highest value out of any other customer group.

Recommendation: Focus on loyalty programs and new product introductions. These customers have proven to have a higher willingness to pay, so don't use discount pricing to generate incremental sales.

Potential Loyalists

These customers have recently come to your store but are not yet heavy spenders. Maintaining a good impression with these customers is important.

Recommendation: Regular communications about sales or promotions as well as focusing on the value of your customer loyalty programs.

Need Attention

Customers in the Need Attention segment are mid-sized spenders at your store but they have recently lapsed. If customers in this segment are not re-engaged they will soon be considered "At Risk".

Recommendation: Communications encouraging customers to come into the store by highlight upcoming promotions or events will help to re-engage these customers.

Promising

Promising customers have tried your store and have returned at least one time very recently. Now is the time to capture this customer and turn them into a more regular visitor.

Recommendation: Offer them a juicy, but time-limited deal to build their muscle memory of coming in to see you on a more regular cadence.

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