Among the various customer segments identified through RFM analysis, the "Can't Lose Them" category is particularly critical.
These are customers who have previously shown loyalty through frequent purchases and high spending, but who have not recently engaged with the company. Identifying and re-engaging these customers is critical to maintaining a healthy customer lifecycle and preventing churn.
Key Takeaways
- Definition: “Can’t Lose Them” customers (CLTS) in Recency, Frequency, Monetary (RFM) analysis are customers who have made frequent, high-value purchases in the past but have not recently engaged with the company.
- Calculation: CLTS is calculated by averaging a customer’s Recency, Frequency, and Monetary scores, where a high score indicates a high-value customer who should be retained.
- Strategic Importance: Identifying CLTS is critical for organizations because it helps retain customers, protect revenue, rekindle brand loyalty, and enable targeted marketing efforts.
- Engagement Strategies: Strategies to re-engage Can’t Lose Them customers include personalized email campaigns, loyalty programs, exclusive offers, feedback surveys, and remarketing campaigns.
- Limitations: CLTS can miss new customers, is sensitive to data quality, assumes past behavior predicts the future, doesn’t account for profitability or non-purchase interactions, and can lead to neglect of broader market opportunities.
- Complementary metrics: CLTS should be evaluated alongside metrics such as churn rate, reactivation rate, customer engagement score, and lapsed time for a complete understanding of customer behavior and retention strategies.
Why does RFM: Number of “Can’t Lose Them” customers matter for your business?
Identifying “Can’t Lose Them” customers through RFM segmentation is critical for several reasons:
- Customer Retention: It is generally more cost-effective to retain existing customers than to acquire new ones. By focusing on customers at risk of churn, businesses can increase retention rates.
- Revenue Preservation: These customers have a history of contributing significantly to your revenue. Recapturing their business can safeguard your earnings.
- Brand Loyalty: Re-engagement efforts can rekindle brand loyalty, as personalized attention makes customers feel valued.
- Feedback Loop: Understanding why these customers have lapsed can provide insights into potential issues with your product or service offerings.
- Targeted Marketing: RFM allows for precise marketing efforts, saving resources by tailoring campaigns to individuals who are more likely to convert.
How to calculate RFM: Number of “Can’t Lose Them” customers (CLTS)?
Explanation of the parts of the formula:
- Recency Score is a value that represents how recently a customer has made a purchase. A higher score indicates a more recent interaction, and this score is typically normalized (e.g., on a scale from 1 to 5).
- Frequency Score reflects how often a customer makes a purchase within a given time frame. Frequent interactions yield higher scores, and like the Recency Score, it’s usually normalized.
- Monetary Score measures how much money a customer has spent over a period of time. Customers who spend more receive a higher score, and this score is also normalized.
- The formula takes an average of these three normalized scores to compute the CLTS, thus giving equal weight to recency, frequency, and monetary values.
In essence, the Can’t Lose Them Score (CLTS) is a composite metric used to evaluate the overall value of a customer in terms of their engagement and purchasing history. A high CLTS indicates a customer with recent, frequent, and high-value purchases, signaling that they are valuable and should be retained.
Example Scenario
Let’s say we have the following scores for a customer:
- The Recency Score is 4, meaning the customer has made a purchase recently.
- The Frequency Score is 5, indicating the customer makes purchases often.
- The Monetary Score is 3, showing the customer spends an average amount of money.
Insert the numbers from the example scenario into the above formula:
- Can’t Lose Them Score (CLTS) = (4 + 5 + 3) / 3
- Can’t Lose Them Score (CLTS) = 12 / 3
- Can’t Lose Them Score (CLTS) = 4.
With a CLTS of 4, this customer is quite valuable and should be a focus for retention efforts. The business might consider reaching out to them with personalized offers or loyalty rewards to encourage continued patronage.
Tips and recommendations for engaging RFM: Number of “Can’t Lose Them” customers
To re-engage ‘Can’t Lose Them’ customers, consider the following strategies:
Personalized email campaigns
Email marketing is still one of the most effective ways to connect with customers. To re-engage your “can’t lose them” customers, consider creating email messages that are not just promotional, but personalized. Acknowledge their absence, express how much you value their patronage and would like to see them back. Tailor your email content based on their previous purchases or browsing behavior to make the message relevant and interesting to them. This could be information about similar products they might like or offers that match their shopping habits.
Loyalty programs
Loyalty programs are a great way to incentivize customers to continue doing business with you. If your Can’t Lose Them customers are not already members of your loyalty program, encourage them to join by explaining the benefits and rewards they can earn. If they’re already members, remind them of the points or rewards they’ve earned. Highlight the exclusive benefits they can redeem, such as special discounts or free items, which can motivate them to come back and make more purchases.
Exclusive offers
Customers love to feel special and appreciated. Providing exclusive offers is one way to convey this feeling to your Can’t Lose Them customers. Give them early access to sales, special discounts, or the chance to try new products before anyone else. Not only does this make them feel valued, but it also creates a sense of urgency and exclusivity that can prompt them to act immediately.
Survey for feedback
Understanding why customers have not returned is critical to effective re-engagement. Consider sending them a survey asking for their feedback. Make sure the survey is concise but covers key points such as their satisfaction with your products or services, areas for improvement, and reasons for their decreased engagement. To increase survey response rates, offer an incentive upon completion, such as a discount code or entry into a sweepstakes.
Remarketing campaigns
Remarketing campaigns are a powerful tool for re-engaging customers who have shown interest in your products but haven’t made a purchase recently. These campaigns show personalized ads based on their browsing history or past purchases across the various online platforms they visit. This persistent, tailored exposure helps remind them of what they’re missing out on and can effectively entice them to return to your site and complete a purchase.
Examples of use
Segmented Email Re-engagement Campaign
- Scenario: A group of customers who used to purchase high-end skincare products hasn’t made a purchase in the last three months.
- Use Case Application: Send a “We Miss You” email campaign with personalized skincare tips, a discount on their next purchase, and a short survey to gauge why they haven’t returned.
Loyalty Program Invitation
- Scenario: High-frequency customers with a significant average spend over the past year have not shopped in the last quarter.
- Use Case Application: Offer these customers an invitation to a VIP loyalty program, which includes perks such as a personal shopping assistant, exclusive deals, and points that lead to discounts on future purchases.
Feedback Incentives
- Scenario: A segment of customers who made large appliance purchases has gone dormant.
- Use Case Application: Send a personalized questionnaire to understand their product experience, with an offer for a complimentary extended warranty or a discount on future accessory purchases as a thank you for their time.
Exclusive Preview Events
- Scenario: Once regular customers of a boutique clothing store haven’t made purchases in the recent sale seasons.
- Use Case Application: Invite them to an exclusive online preview of an upcoming collection, giving them the opportunity to purchase before the general public.
Remarketing Ad Campaigns
- Scenario: Customers who frequently purchased books from a particular genre have not visited the website in months.
- Use Case Application: Implement a remarketing ad campaign targeting these customers with new releases in their preferred genres, coupled with a limited-time free shipping offer.
RFM: Number of “Can’t Lose Them” customers SMART goal example
Specific – Increase the Can’t Lose Them Customers Score (CLTS) by 25% by improving customer engagement and retention strategies.
Measurable – The CLTS will be tracked through the RFM (Recency, Frequency, Monetary) analysis tool, comparing scores before and after implementing the new engagement strategies.
Achievable – Yes, by using targeted marketing campaigns, personalized promotions, loyalty programs, and improved customer service interactions to increase recency, frequency, and monetary scores.
Relevant – Yes. This objective aligns with the company’s goal of retaining valuable customers and increasing their lifetime value, ultimately contributing to sustainable revenue growth.
Timed – Within the next fiscal quarter, following the rollout of improved retention initiatives.
Limitations of using RFM: Number of “Can’t Lose Them” customers
While the RFM-based Can’t Lose Them Customers Score (CLTS) is a powerful tool for ecommerce customer segmentation, it has several limitations in analysis:
- May Overlook New Customers: The CLTS heavily relies on historical data, potentially underestimating the value of new customers who may not have had the opportunity to demonstrate loyalty but could have significant future value.
- Sensitivity to Data Quality: The accuracy of the CLTS is highly dependent on the quality of the data collected. Inaccuracies in customer transaction data can lead to misclassification of customers and misguided marketing strategies.
- Assumes Past Behavior Predicts Future: The score is based on the assumption that past customer behavior is a predictor of future actions. This may not always hold true as customer preferences and market conditions can rapidly change.
- Does Not Account for Profitability: Like AOV, CLTS doesn’t necessarily reflect profitability. A customer could have a high score based on frequency and recency yet predominantly purchase low-margin items.
- Does Not Reflect Non-Purchase Interactions: The CLTS doesn’t capture other forms of customer engagement, such as social media interaction or word-of-mouth referrals, which could be indicative of customer loyalty.
- Limited by the Lack of Contextual Data: The score may not incorporate external factors influencing buying patterns, such as economic shifts, seasonal trends, or competitive actions that affect customer behavior.
- Can Lead to Neglecting Broader Market Opportunities: Focusing too much on the CLTS might cause a business to miss out on broader market opportunities or fail to address the needs of other customer segments.
- Challenges with Segment-Specific Actions: Implementing targeted actions for the ‘Can’t Lose Them’ segment requires careful personalization, and there is a risk of alienating customers if perceived as too aggressive or irrelevant.
In summary, CLTS is a valuable segmentation metric in an ecommerce company’s analytical toolkit, but it should not be used in isolation. It is best used in conjunction with other metrics and qualitative insights to create a holistic understanding of customer behavior and value.
KPIs and metrics relevant to RFM: Number of “Can’t Lose Them” customers
- Churn Rate: The percentage of “Can’t Lose Them” customers who stop purchasing over a certain period. It’s crucial to monitor this closely to implement retention strategies promptly.
- Reactivation Rate: Measures the success of campaigns designed to win back “Can’t Lose Them” customers. A successful reactivation can often lead to regained loyal customers.
- Customer Engagement Score: Quantifies the level of interaction “Can’t Lose Them” customers have with your brand. Lower engagement could be a precursor to churn.
- Lapsed Time: The duration since the last purchase. Understanding the time lapse can help in timing re-engagement initiatives effectively.
Focusing on these KPIs can help you better understand the “Can’t Lose Them” segment and formulate strategies to retain these valuable customers.
Final thoughts
Can’t Lose Them” customers are a critical part of the customer base for any e-commerce business. Through RFM analysis, companies can identify these at-risk customers and take strategic action to re-engage them. The return on investment for these efforts is twofold: not only can businesses potentially recover lost revenue, but they can also strengthen their relationship with customers who have already shown a propensity to engage and convert. By using data to deliver personalized experiences and incentives, companies can effectively reduce churn and foster stronger customer loyalty.
RFM: Number of “Can’t Lose Them” customers (CLTS) FAQ
Who are “Can’t Lose Them” customers in RFM analysis?
They are customers who have historically been frequent and high-value shoppers but have not made recent purchases.
Why are “Can’t Lose Them” customers important?
They are important because they have a high potential lifetime value and their recent inactivity may signal a preventable loss of business.
How can I identify “Can’t Lose Them” customers?
Through RFM analysis, by segmenting customers who have a high frequency and monetary score but a low recency score.
What strategies can help retain “Can’t Lose Them” customers?
Re-engagement campaigns, personalized offers, feedback surveys, and loyalty programs are effective strategies.
Is it cost-effective to focus on “Can’t Lose Them” customers?
Yes, as it often costs less to retain an existing customer than to acquire a new one, focusing on “Can’t Lose Them” customers can be very cost-effective.