RFM segmentation divides customers according to three pieces of data that every company with orders has: how long ago they last bought, how often they buy, and how much they have spent in total. Every customer receives a score on these three axes, and the combinations produce clear groups – the most valuable loyal customers, promising new ones, dormant ones, those at risk of leaving, and lost ones. The strength of the method lies in its simplicity: it needs no modelling and can be done in a spreadsheet. Its use is straightforward, since each group calls for different communication – loyal customers are not sent a discount they would not need, dormant ones are sent a reminder, and those at risk are sent an offer before they leave. Recalculate the segmentation regularly, because customers continually move between groups.
See also: Customer retention, Win-back campaign, Cohort analysis.
