With an ever-growing number of touchpoints between businesses and their customers, it’s becoming increasingly difficult to individualize your message. After all, how do you personalize the hundreds, if not thousands, of social media interactions, emails, and offline activations that take place each and every day?

But despite its difficulty personalization has never been more important. Without it, organizations are at best not communicating effectively with their customers, and at worst are actively alienating them from their brand. After all, you wouldn’t talk to your best friend the same way you’d talk to your grandma, so why would you communicate to all customers the same?

Indeed recent research has shown that marketing personalization can have a significant boost on the bottom line, and by adopting it businesses can increase online sales by 25%. In fact, even something as simple as personalizing email marketing efforts can improve open rates by 26%.

Complete experience personalization may still be reserved for the Fortune 500, but tweaking your customer focus and ensuring that they’re getting highly relevant messaging doesn’t take a multi-million dollar investment. Most businesses can start increasing customer lifetime value (CLV) now by asking the right questions and leveraging a few, simple purchase data points (from an eCommerce or CRM system) for RFM analysis.

What is Customer Lifetime Value (CLV)?

CLV sounds more complicated than it actually is. Put simply it’s the total profit that a customer holds across all of their purchases with your company.

It’s therefore calculated as:

Profit margin  x Average order value x Number of purchases

In contrast to planning around factors like the lowest cost per acquisition or the highest return on ad spend, optimizing for the highest customer lifetime value enables you to put your focus on your best customers rather than the ones that are easiest to acquire.

What is an RFM analysis?

RFM is a heuristic model for customer segmentation based on three components of purchasing behaviour:

  • Recency — How long it’s been since a customer’s last purchase.
  • Frequency — The total number of orders a customer completed in the lookback period.
  • Monetary — The average or total amount of money spent by a customer in the lookback period.

Its value is derived from the Pareto Principle, which describes that 20% of causes create 80% of the effects. In the case of a business, this means that your top customers (20%) likely generate the vast majority of your revenue (80%). They may not be the easiest to acquire nor the easiest to retain, but they’re the ones who drive the most value for your business and they’re who you should be focusing your efforts on.

Evaluating RFM customer segments by customer lifetime value enables you to find who your top customers really are and when it’s most important to reach them.

Apply the findings

After you’ve identified what segments your customers fall into, you can use this RFM information to determine some general messaging for them. For example, a loyal, long-time purchaser won’t need to be educated on the value of the brand, but they will be interested in receiving exclusive offers and seeing new products. Alternatively, a new purchaser has likely had less interaction with your brand and may be more likely to engage with content that shares the story behind it.

Some communication styles are common across all businesses, but you then need to think about the results of your RFM analysis in the context of your business specifically. For example, recency is much more important for lower value, commoditized products like retail fashion or household goods. Recency has less importance, however, for products that are purchased on a more cyclical basis where recency will be less predictive of an immediate repeat purchase.

The key is to look at your organization’s marketing processes and determine at which touchpoints you can personalize the messaging to your customers. For many businesses, the most common areas for personalization are email marketing where the use of marketing automation technology can help you to quickly and easily tailor your message to your target audience.

Don’t be afraid to test the impact of marketing automation to find out what resonates with your different customer segments. And don’t limit yourself to just email either. With the right execution and audience size, you can personalize messaging to your customers on a range of touchpoints including Facebook, Google, programmatic and web channels.

Take it up a notch

Basic RFM scores can provide you with an idea of who your top customers are and give you a framework for communicating to them. But it won’t tell you where to find them, why they buy with your brand or any number of other contextual questions.

So if you’re looking for the answer to these questions then you’re going to have to take things up a notch:

Start with statistically significant clusters

Basic RFM analysis techniques only split users into even groups, but your customer base may not fit that perfectly. Leverage the power of machine learning-enabled cluster analysis techniques to find statistically significant groups within your RFM metrics.

Question your assumptions

Talk to relevant stakeholders within your business. Who do they think your top customers are? Why do they think customers care about your brand? Are they loyal to the brand as a whole or to a specific product? Don’t just take what you know, or think you know, for granted. Challenge preconceptions to get to the core of exactly who your best customers are and what they want from your brand.

Compute the results

Take the learnings from the assumptions and test them within your customer data set. If there’s a relevant question that you can’t answer with existing data, then it’s probably something you should start tracking.

Go straight to the source

You can only test so much within your existing knowledge base, both qualitatively and quantitatively. To confirm your findings and get a deeper insight into the ‘why’ behind your customers’ interest in your brand, you need to talk to them. Interview them if at all possible, as you can only garner so much from a survey with a smaller sample.

Everybody’s a little bit different

If all of this sounds difficult it’s because it is. Complete personalization of the customer experience still remains difficult for even the biggest of companies. Adobe notes that:

“sixty percent of marketers struggle to personalize content in real time, yet 77% believe real-time personalization is crucial.”

Yet, despite the difficulty in implementing personalization, the benefits for organizations is clear. So if you haven’t already, then now is the time to start the personalization conversation within your business. After all, it’s not a question of whether personalization is right for your business, but whether personalization is right for your customers.

Designed to help organizations navigate the ever-changing digital landscape, Major Tom has been working at the forefront of personalization. To find out how personalization could impact your organization, get in touch with our team of experts located in New York, Toronto and Vancouver who would be happy to help.