RFM Grid-Based Segmentation To Ensure The Healthy Retail Business

Once the customer segmentation is achieved, its presentation is the next thing to work upon. The formation of customer segments is the primary motive but unless these segments are easily accessible for comprehension; it can be a hectic thing. Enalito presents the customer segments in the simple and easily understandable Grid-form. The grid represents the two of the RFM values on the X & Y axis and demonstrates the relation between them. Based on the relationship between the two of the RFM values, each grid denotes a customer segment with a name that indicates the nature of customers in a particular customer segment. Clicking on each grid leads to a customer segment that shows the detailed information of each customer’s behavior, value and contribution to the store. The grid-based structure of customer segment presentation gives ease of access and an ideal understanding of customers to the retailer.

As there can be many customers with varied sort of behaviors, the grid is designed in a precise way to not let any type of customers or customer segments get missed. The grid-based segmentation reveals a number of segments relied upon the two of the RFM aspects, which are like:

1. The Recency-Frequency Grid:

The Recency-Frequency Grid shows the relationship between how recently the customers have ordered against how many orders they’ve placed. This relationship strongly correlates with customer loyalty (and defection). The grid shows the varying type of customers in various segments based on the correlation between Recency and Frequency values. By clicking on any item in the grid, a retailer can see the full list of customers and find detailed business analysis and strategy to take for that segment of customers.

The various customer segments that come under the Recency-Frequency grid and what they showcase are as follows:

a. New customers:

This customer segment shows those customers who have recently made their first and only purchase with the store. Through this segment a store should stress customer service, trust, and that it stands by every product with no questions asked guarantee. The store needs to reassure them about their purchase (testimonials, awards) and send them related content to better enjoy their purchase. It should also invite them to contact whenever they want by email or phone, and also extend the relationship by motivating them to connect on social media too. If a store is capable to build trust, these customers can turn into loyal and repeat customers.

b. Potential Loyal customers:

This customer segment shows those customers who are active customers and have started to make repeat purchases after recently making some purchases. This group has the potential to become Loyal or VIP customers but they could use some nudging in the right direction. A store should recognize them and make them feel special. Exclusive events, limited-supply offers, or loyalty discounts can all work to keep them engaged. The retailer should also use regular trust-building communications with them and any social proof (testimonials, awards) can help to reinforce their behavior.

c. Loyal customers:

This customer segment shows the customers who buy from the store frequently. They reveal an above-average level of order frequency and have purchased recent enough to be considered active. The store needs to reward their loyalty like giving unique offers; access to special deals and events, and other perks that can keep their loyalty up and move them into the higher VIP segment.

d. VIP customers:

This customer segment shows the best of the customers. VIP customers shine in all three measured levels. They bought recently, bought most frequently, and have the largest orders. They are the top 1% of the store’s customers (top 0.8% to be precise). A store needs to treat these customers as very special with a variety of benefits. The retailer must make sure that the store is communicating with them regularly, both automatically (e.g. personal offers) and manually (e.g. 1-off personal emails). This is also a great segment for targeting audience-based advertising (e.g. Facebook Lookalikes).

e. Promising New customers:

This segment shows the customers who are fairly new (but not brand new) customers. They ordered a little time back that a store might consider dropping hints and incentives about their next order but not enough to do a full marketing blast. With the right marketing they could develop into more loyal segments buying frequently. For this segment, the retailer should make sure that the customers are getting regular 1st Purchaser series emails. The store can also offer them products similar to their first purchase to stimulate a second purchase.

f. Neutral customers:

The customers in this segment are those who haven’t defected yet and show average repeat purchase behavior. These customers are in the ‘wait-and-see’ segment. The store should make sure that it is sending the offers and regular relationship/trust-building communications to these customers. Eventually, these customers will either engage to improve the Neutral segment, or they won’t and will start to defect.

g. Defection Risk customers:

This segment includes those customers who are on the edge of buying from the store’s competitors. They might be recoverable, especially if they order infrequently. The store should target this segment with all and any re-engagement and win-back campaigns. Recovering them can rekindle their purchases before they are fully gone.

h. Defection Risk Loyal customers:

The customers in this segment are store’s ex-loyal customers. They have a higher than average number of orders but they haven’t ordered recently. This means they could have defected or are about to defect. The store needs to focus on recovering these customers. It should motivate them to bring them back for a new order. The motivation can be a gift with the purchase, discount, or a premium bundle. Good win-back discounts won’t hurt here as these customers have shown strong behavior in the past, which could lead to multiple future sales if they come back.

i.  Defected customers:

This customer segment shows those customers who have stopped buying from the store a while ago. These customers might only be inactive but as they have been gone for a long time without any orders, so either they are fully satisfied and don’t need to buy again (maybe Christmas and other Gift Buyers), or they are unsatisfied and won’t buy again. To turn them in again, it would be interesting to see what channels these customers were originally acquired through, as they may represent an under-performing channel. It would be worth to identify any unsatisfied customers to see what went wrong.

j.  Defected Loyal customers:

This segment shows those customers who are high-frequency customers but have stopped buying from the store. The store must try a reactivation or re-engagement campaign to win them back but it is difficult. It can be useful enough to discover the reason why they left.

2. The Recency-Monetary Grid:

The Recency-Monetary Grid shows the relationship between the customer loyalty (how recently they have made a purchase) and the amount they have spend. This can help to see if a store is retaining the bigger spenders or if they are defecting. The Recency-Monetary grid reveals the relationship between the activity of the customer and the monetary contribution they make to the business. Clicking on any item in the grid shows the full list of customers and provides detailed business analysis and the strategy to adopt for the customers of each segment.

The various customer segments that come under the Recency-Monetary grid are as follows:

  1. Recent Low Spenders:

The customers in this segment are those who have recently ordered but their order amounts are lower than the store average. The store needs to understand: is it a merchandise issue where customers just order inexpensive products or is it a marketing issue that attracts lower spenders? The retailer needs to look into why the order values are low. For example, this could be due to the customer’s interest in one-off short-dated beer and soft-drink. Offering incentives to such customers for boosting the order value can be a productive measure (e.g. Free Shipping over X, Gift with orders over Y).

b. Recent Neutral Spenders:

This segment shows customers who have ordered fairly recently but have spent an average amount across all their orders. If the store can secure another order from them, then it can convert them into high spenders or else they may fall into low spenders. For this segment, the store should communicate with the standard relationship-building communications. Eventually, these customers shift out of this group but until they do, the store can’t be sure of how they’ll respond to offers.

c. Recent High Spenders:

This customer segment contains the customers who made high spending as well as recent purchases. These customers are active and have spent a significant amount across all of their orders. They aren’t at the level of “Whales” but can grow into one with the right treatment. With this segment, the store should continue the marketing to keep-in-touch and build trust. Social proof (testimonials and awards) content and product back-ground stories for their purchased products can build a valuable reinforcement. Up-sells and cross-sells can help to keep up and increase both the order value as well as recency.

d. Recent Whales:

Recent Whales is a customer segment that contains customers who are high spending and made recent purchases. These customers are active and have spent the highest amounts on their orders recently. The monetary amount contributed can be due to a single huge purchase or many large purchases, but as a result, they outrank other spending segments. The store needs to thank them and give them the best services it can. Free gifts or samples can be valuable because they had already given enough profit to spend more freely on them. The store should dedicatedly continue to market products to them, so they continue to re-order.

e. Defection Risk Low Spender:

This customer segment shows those customers who haven’t purchased recently and haven’t spent that much overall either. The store should run a simple win-back campaign that could bring them back, although it shouldn’t invest big discounts on this group. Since these customers haven’t spent much, a discount can wipe out the profits from their orders. These customers are at risk of defection but their low-spending nature suggests not spending more to bring them back.

f. Defection Risk Average Spender:

The customers in this segment are potentially switching away from the store. They have spent near the average amount on their orders so they won’t be the top focus for campaigning, but the campaigns targeted on them can be modestly successful. With this segment, the store needs to deploy win-back and re-engagement campaigns to motivate them to place another order. Tactics that boost AOV above the overall store’s AOV can also transition some of these customers into high spenders at the same time.

g. Defection Risk High Spender:

The customer segment shows those customers who have spent more than average on the store but not recently. The store might have either lost them already or will lose them soon. This segment is a prime candidate for the win-back campaigns using discount ladders (e.g. 5% discount to start, followed by 10% if they haven’t ordered, and so on). The goal of campaigning to this segment is to bring the customers back for another order, even if that order isn’t as large as usual.

h. Defection Risk Whale:

The customers in this segment require immediate attention. The members of this segment are top-spending customers but they haven’t ordered anytime recently. If the store can recover and reactivate them, they can get transformed into strong customers again. If it can’t, they will defect. The store needs a special ‘defecting whales reactivation’ for this segment. It can afford to make the reactivation offer generous enough, as these customers account for larger orders. By recovering them, the store can profit even if the reactivation order is lower than normal.

i.  Defected Low Spenders:

The customer segment includes those customers who haven’t purchased recently and they haven’t spent much on their previous orders too.  Since they didn’t spend very much, there’s a reasonable chance that they were not greatly profitable. The store can use a win-back campaign but the other segments are worth more of the attention than this segment at any moment.

j.  Defected Average Spenders:

The customers of this segment are probably gone. They spent an average amount of money and that also much time ago, so their time with the store could have just reached its natural conclusion. With this segment a win-back campaign or something similar could pay-off but the retailer should remain more focused on ‘defected higher spender’ and ‘whales’ first, as they have a higher potential return.

k. Defected High Spenders:

The customers of this segment have spent a considerable amount on the store but they haven’t ordered in a very long time. If they can be retrieved back, they’ll be valuable customers, but it won’t be easy. With this segment, the store needs to use re-engagement and win-back campaigns. The store can combine this segment with the ‘Defected Whales’, as their behavior is similar with just the exception of different order values.

l.  Defected Whales:

The ‘Defected Whales’ customer segment shows those customers who used to be whales (spent more and also recently) but now who are probably gone. The store can start by trying a win-back campaign or a personalized reactivation campaign. These are the customers who are worth a lot of revenue but winning them back will be difficult. They are worth approaching to find why they have stopped purchasing.

3. The Frequency-Monetary Grid:

The Frequency-Monetary Grid shows the relationship between the monetary contributions made by the customers and their number of orders. Average spenders spend close to the store’s Average Order Value (AOV). Customers who spend more come into the higher monetary segments and those who spend less; fall into the lower monetary segments. Frequency-Monetary grid clears which customers contribute how much and whether by buying costly products or by buying many products of less price.

By including Frequency, this automatically adjusts the segments so the number of orders is figured out of the segment labels. That places one-time customers on equal footing with repeat customers as far as their order values are concerned. Clicking on any item in the grid shows the full list of customers with the access to detailed business analysis and suggesting strategies to apply on each customer segment.

The various customer segments that come under the Frequency-Monetary grid are as follows:

a.   Frequent Candy:

This customer segment includes those customers who are buying a lot but are not contributing much to revenue of the store. These customers can be buyers of less-expensive products or products that come cheap and have a repeated demand in less time. To this segment, those products should be campaigned which are similar to the products purchased but can contribute much more to the revenue.

b.   Frequent Frugals:

The customers in this segment are those who are the highest frequency buyers (buy frequently) but are contributing average revenue. These customers are like the essential bread and are a must for survival of the store. Such customers should be kept engaged in buying and shouldn’t be undervalued. Campaigns should be sent to increase more of the revenue contribution from them.

c.   Frequent VIP:

This segment contains the best of the best customers. These highest frequency buyers are also the highest spenders. The customers in this segment buy frequently and spend on products of high value. Personal service and the utmost satisfaction of these customers should be the main preference of the store. These customers provide a consistent boost to the store’s performance.

d.   Tiny Average:

The customers in this segment are the lowest spenders with an average frequency of buying. These customers buy less frequent and spend the least. The campaigns to motivate bigger purchases should be launched but huge efforts should remain focused on those customers who are more probable to make bigger purchases.

e.   Average:

This segment contains those customers who buy at an average frequency and also contribute an average amount of money through their purchases. These constant money makers are necessary for the store. Such customers are often repeat buyers who should keep purchasing and shouldn’t be lost. Consistent campaigning and attractive offers should be sent to them from time to time.

f.    Active Whales:

As the name suggests, the customers of this segment are active and big buyers. These are the customers who buy frequently and also make maximum money for the store. Such customers should be motivated heavily and a more aggressive campaigning approach can be implemented to increase their order count. Bigger discounts and rewards can be given as these customers already contribute a huge part to the store’s revenue.

g.   Small Fry:

These are the customers who spend less money with the lowest order count. Such customers are not worth spending too much time on. These customers don’t buy often and also don’t buy expensive things, so the normal campaigns should be sent to them but shouldn’t be paid too much focus.

h.   Slow Whales

The customers of this segment don’t buy a lot of times but do make maximum money for the store. These customers are big spenders even though they don’t engage in buying frequently. Bigger and Aggressive promotions to them can result in big growth in revenue. Heavy discounts and attractive rewards are better campaigning options to make them buy more and big.

i.    Infrequent Whales

This segment has customers who have the lowest frequency of buying but produce the highest revenue for the store. These customers can improve and become high value and active whales. The store should check by trying different campaigning strategies if anything can be done to make them purchase more.

Related Articles