Is your RFM analysis throwing away good customers like households waste good food?

Official estimates for UK household food waste in 2015 come to 7.3m tonnes. Of this the avoidable element, if not wasted, would have saved the average household £480 pa. Yet we have discovered that marketers who allow themselves to be governed by the use of RFM analysis (recency, frequency, monetary value) as their criteria for selecting which customers to engage with are allowing themselves comparable customer wastage.

RFM has been recognised for many years as a great way to select customers for marketing communications, but it has a significant flaw!

People who still have a relationship with your company get ignored if they are not continually buying from you.

We routinely find customers on the bottom rungs of the RFM ladder that can still be profitably communicated with if you take a different approach.

In a recent case of a home shopping company we found customers who could have provided an extra £1m of net demand being excluded by RFM from receiving catalogues.

To find the valuable individual customers in your older RFM segments we build a multi-variate purchase value propensity model. This takes account of a wider range of variables than RFM, such as product categories, and will combine data from individual transactions in many more complex ways than RFM can do.

We then build a matrix that overlay RFM segments with propensity bands.

RFM analysis and propensity matrix diagram

In the top right hand corner of this matrix we have people who would have been forgotten by RFM analysis but who in fact still have considerable demand value according to the propensity model.

Want to read more about RFM? Read our white paper completed for a home shopping company where we compared the difference in net value obtained from using propensity model scoring versus RFM

UniFida logo

UniFida is the trading name of Marketing Planning Services Ltd, a London based technology and data science company set up in 2014. Our overall aim is to help organisations build more customer value at less marketing cost.

Our technology focus has been to develop UniFida. Our data science business comes both from existing users of UniFida, and from clients looking to us to solve their more complex data related marketing questions.

Marketing is changing at an explosive speed, and our ambition is to help our clients stay empowered and ahead in this challenging environment.