In order to differentiate customers from data set RFE method uses three different attributes:
Recency of the last purchase (R) - refers to the interval between the time that the latest customer's page visit happens and current date. The shorter the interval between current date and last last visit, the bigger R is.
Frequency (F) - refers to the number of page visits in a particular period. The more frequent customer visits company's page, the bigger her F score is.
Engagement value (E) - refers to number of page impressions generated by the customer. The bigger the number of page impressions, the bigger E score is.
First, customers are divided into 5 equal sized groups (20% in each group).
Customers are then given an R, F, & M score from 1 to 5. Using a score of 1 to 5, 20% of the most recent customers get an R score of 1. The second most recent get an R score of 2 and this continues until all 5 groups receive a score. The 5 groups are reorganized to repeat the procedure for the F & E scores.
Customers who viewed recently are frequent customers assigned a score of 555 – Recency (R) – 5, Frequency (F) – 5, Engagement (E) – 5 -They are your best customers.
Customers who didn’t site view , and didn’t site view a long time ago – assigned a score of 111. Recency (R) – 1, Frequency (F) – 1, Engagement (E)
Once classification is done we split customer base into 11 clusters:
Advantages of applying RFM Segmentation to Your business:
- RFE makes email marketing better because it automates moving people between segmented list if they move from one RFM segment to another one.
- RFE is great for new product launches, especially when you want to get initial traction and feedback. You have a possibility to contact with your best, and the most loyal customers even before creating a product.
- RFE increases user engagement and loyalty by sending personalized promotions, and educational content which will increase their relationship with your brand.
- RFE minimizes marketing campaign costs and improve Rol by focusing on a smaller segment of customers will significantly reduce costs, allow you to do more experimentation, and make decision based on data.
- RFE is a good idea for retargeting campaigns and remarketing especially when you want to export a part of your customers to another campaign management solution.