How to Structure Your Email Strategy With RFM Segmentation (Case Study)

We once had an e-commerce client who came to us, asking how they could increase their email revenue without using any sort of promotions at all.

This meant:

• no discount coupons
• no sales promotions
• no BOGO offers
• no free shipping offers
• no tiered sales
• no giveaways

Since we’d only be managing their email marketing, there weren’t many options left for us to work with (if we were managing their ads or social media, we could have tried to increase store traffic).

Luckily, we had one last trick: RFM segmentation.

(if you’re not familiar with segmentation, check out this post before you continue reading)

What Is RFM?

RFM stands for:

• Recency
• Frequency
• Monetary value

and RFM segmentation means to segment customers based on how recently they have made a purchase, how often they make a purchase, and how much they spend with each purchase.

RFM is a subset of behavioural market segments that can efficiently find high-value customers.

Why Use RFM?

RFM segmentation is effective because it applies to every business; the idea is that:

• customers who shopped with you recently, have your brand at the top of their mind
• customers who shop with you often, trust your product quality
• and customers who spend a lot when they shop with you, are more invested in your brand

There are many ways to use RFM segmentation depending on the products or services that you sell.

The Exception: Startup Brands

RFM segmentation will work better with larger email lists, since RFM is based on existing customers.

A good rule of thumb is to get 10000-20000 email subscribers before you plan a segmentation strategy.

Although RFM would still work, because small brands and startups don’t have many email subscribers they should focus on growing their email list instead.

5 Ways To Use RFM In Your Email Campaigns

With just about 12000 people on their email list, RFM segmentation should work for this client in theory. Spoiler alert: it did, but not without risks.

You see, this client had never cleaned their list, and didn’t measure their engaged segment — which to email marketers, is the true size of your list.

After doing some basic list cleaning and creating an engaged segment, we found that their true list size was about 5000 people!

So in addition to applying RFM segmentation, we also had to restructure their email campaign strategy, using the following types of emails:

1. Product Spotlights

Recency is a great behavioural segment for product spotlight campaigns.

If you’re going to send an email tomorrow that will promote one of your products, then you can:

• send this email to people who have recently visited this product page
• include people who have recently added this product to their cart
• exclude people who have recently purchased this product

The last point is important; you don’t want to promote a product to someone who recently purchased it, especially if you’re offering a discount when they bought it at full price!

2. Subscription Productions

If a customer frequently buys a certain product from you, then you should consider promoting a subscription to them.

You can also combine recency with frequency to find the customers who purchased this product multiple times within the past week, month or year, depending on your typical re-order rate.

Some selling points for subscriptions:

• a subscription saves money for customers — they cost less than purchasing the same product repeatedly
• customers won’t need to visit your store to reorder because the subscription does this automatically
• customers can also choose how often they’ll receive their subscription order

3. Bundle Offers

If your customers frequently buy the same products together, then you should consider promoting a bundle savings offer.

Bundle offers can:

• incentivize customers to place larger orders, which increases average order value
• get rid of excess inventory
• save money for customers

4. Bulk Deals

By offering tiered savings for large orders, customers are more likely to purchase more items each time they shop with you.

Bulk deals are a great offer for customers who:

• often express interest in a product (visit the product page, add product to cart, engage with emails about a certain product)
• regularly purchase a product
• make large orders for a product

Bulk deals are especially effective for CPG brands and can be a great replacement for bundle offers or subscriptions.

5. VIPs and Brand Loyalty

Customers who shopped recently, frequently, and have large lifetime value can be considered your VIPs.

This will vary between brands, but you should treat your most loyal customers with more care and exclusivity than the rest of your audience.

You can also use loyalty programs to gamify your business, and offer rewards to your brand enthusiasts.

Conclusion

Within that month, we had A/B tested a lot of email campaigns, and doubled down on the messages and segments that worked.

If there’s any takeaway from this post, it’s that in addition to RFM segmentation, please also practice list cleaning and regularly measure your engaged segment.

At the end of the day, their monthly revenue was nearly tripled that of the last month, but it took us a lot more work (and costed them much more money) to restructure their campaign strategy.

Summary Notes

• RFM stands for Recency, Frequency, and Monetary
• RFM segmentation is used to find high-value customers
• It works best for larger email lists (at least 10000 subscribers)
• It does not work as efficiently for smaller email lists