Segmenting your mailing list is one of the first steps of developing a direct mail campaign. That’s because it’s also one of the most important actions you can take to ensure your campaign's success.
According to the 40-40-20 rule, 40 percent of a marketing campaign’s effectiveness is determined by the audience. Are you reaching the right customers who will engage with and be interested in your product or service? There are many ways to segment the population based on characteristics such as demographics, behavior, geographic location, or psychographics. One of the most compelling segmentation tactics, however, is RFM (Recency, Frequency, Monetary) analysis, also known as RFM segmentation.
This approach enables you to divide your target lists based on recency, frequency, and monetary values. Then, you can develop customized messages and marketing plans based on these behaviors, increasing response rates, loyalty, and customer lifetime value. To learn more about the basics of RFM segmentation, check out “RFM Analysis: A Guide for Direct Mail Segmentation.”
In this blog, Design Distributors will outline the RFM analysis process for your next direct mail campaign. There is software available to ensure the segmentation process is seamless and automatic.
Step 1: Assign Values to Customers
Typically, marketers have an extensive database of existing customers that lists purchase information, browsing history, previous response rates, and demographics. To begin your analysis, you’ll need to assign recency, frequency, and monetary values to each client. Recency is the amount of time since your customer’s last interaction or transaction. This can be conveyed in hours, days, weeks, or months. Frequency refers to the number of transactions the customer made within a defined period of time. Monetary concerns the amount the customer spent during a particular time period. Whether utilizing specialized software or an Excel spreadsheet, you should compile the information for ease of use.
Step 2: Narrow Down the Segments
Once you’ve divided the customers into those three categories, you’ll want to further segment them into tiered groups of either two, three, or four. Each should represent a degree on the scale from most to least. For example, within the recency category, four tiers will segment the contacts based on the most recent transactions to the least recent. This system results in 64 sections. A three-tiered approach creates 27 segments, while a two-tiered system leaves only eight. It’s not recommended to use more than four tiers.
Step 3: Define the KPI that Matters to You
Next, you’ll want to select the groups you’re interested in marketing to. This involves defining the key performance indicators (KPIs) that matter most to your marketing efforts. Are you more concerned with the recent purchasers, the less frequent, or the group that spends the most money? Maybe you’re intrigued by multiple KPIs such as customers who frequent the store the least but spend a large amount each time they visit. What’s driving them to buy in such high volumes so infrequently, and can you get them to visit more frequently? Each KPI you focus on will result in new questions. You can also assign each group a name based on their habits. For instance, those in the monetary category and in the most frequent tier can be labeled high-spending customers.
Step 4: Develop Your Messaging
Now that you’ve determined your segments, you can begin crafting your message, tailoring it to each specific sector. Adding personalized and custom messages to each mail piece increases your response rate and return on investment (ROI). For example, for your customers that frequently shop with you and spend a high amount of money, your overall message should ensure they feel valued. Loyal customers should experience a sense of appreciation when they receive your postcard or letter. Newer high-spending customers are a great opportunity. You’ll want to capture their future business by offering incentives such as coupons, discounts, or other specials. Active customers who spend less should also be given incentive opportunities such as rewards or or offers for persuading friends or family to try the brand.
Design Distributors can help you create personalized mail pieces targeted to specific segments to get you the most out of your direct mail campaign. Customized mail pieces dramatically increase your response rates and ROI. To take advantage of the effectiveness of direct mail, get a free quote now or contact us for more information.