RFMPCP ... What?

I recently met with an experienced B-to-B direct marketer to talk about what his company is doing to “get more with less.” It's a common theme these days. We discussed how many marketers, particularly new e-marketers, weren't paying enough attention to the basics, such as RFM segmentation and a good contact strategy. The discussion then turned to how his company had improved on the tried-and-true RFM tool. Here are some key points I took away from that discussion:

• We all know that RFM is about dividing the customer file into groups of customers based on when they last ordered (recency), how often they order (frequency) and how much they order (monetary). Developing your promotion, offer and contact frequency using these variables is often referred to as “the basics," allthough I still encounter many companies who have yet to adopt this discipline.
• The next “P” stands for product. Essentially, you segment RFM into further groups by what product categories they purchased. What you often see here is that you don’t have customers who buy all categories of your products, but rather groups of customers that buy only one category of products.
• Then in today’s multichannel-integrated world comes “C,” representing the channel your customers prefer to order in. You might try to segment them into online, offline or both to start.
• The last “P” stands for price, which, as you might expect, is an increasingly important variable in this recessionary marketplace. Here, segment your customers based on whether they buy at your full catalog price or whether they wait for promotional offers — or some combination of both.

Of course, such segmentation analysis is just the beginning. What you do next is what counts. Armed with this database intelligence, you'll then want to develop offers for each segment that appeal to its respective characteristics and buying behaviors. The goal is always to obtain another incremental percentage lift in performance.