What are the best practices for segmenting customers based on purchase frequency and basket size?

2 How to segment customers by frequency and basket size?

Different ways to segment customers by frequency and basket size exist, depending on your data, goals, and tools. The RFM model (Recency, Frequency, Monetary value) is a popular and simple method that assigns a score to each customer based on how recently, how often, and how much they have bought from you in a given period. This score can be used to group customers into various segments, such as Champions (recently, frequently, and with high value), Loyal customers (frequently and with high value, but not recently), Potential loyalists (recently and frequently, but with low value), New customers (recently, but not frequently or with high value), Promising (recently and with high value, but not frequently), At risk (frequently and with high value, but not recently), Need attention (frequently and with low value, but not recently), and Hibernating (low frequency and low value, and not recently). These segments provide valuable insights for understanding customer loyalty and profitability, as well as for crafting tailored marketing campaigns.

3 How to use frequency and basket size segments for retail marketing?

Once you have segmented your customers by frequency and basket size, you can use these segments to tailor your retail marketing strategy to each group. You can employ different offers, messages, and channels to target each segment based on their value, behavior, and preferences. For instance, create personalized and relevant email campaigns that match the needs and interests of each segment. You could send exclusive offers, discounts, or loyalty rewards to your champions and loyal customers; cross-selling, upselling, or bundling suggestions to your potential loyalists and promising customers; win-back campaigns, incentives, or reminders to your at-risk and need attention customers; and re-engagement campaigns, incentives, or reminders to your hibernating customers. Additionally, optimize your website and landing pages to show different products, offers, or content to each segment based on their browsing and purchase history. For example, display recommendations, reviews, or testimonials to your new and potential customers; best-sellers, new arrivals, or limited-time offers to your engaged and loyal customers; and clearance items, flash sales, or free shipping to your inactive and unprofitable customers. Finally, segment your social media audience and create different posts, ads, or stories to target each segment based on their engagement and conversion rates. Consider using user-generated content, contests, or polls for interaction with champions and loyal customers; video tutorials, guides, or blogs for educating new and potential customers; retargeting ads for enticing at-risk and need attention customers; lookalike audiences for attracting hibernating customers.

4 What are the benefits of segmenting customers by frequency and basket size?

Segmenting customers by frequency and basket size can bring various advantages to your retail marketing strategy, such as boosting customer retention and loyalty, increasing customer lifetime value, acquiring new customers, delivering personalized offers, and optimizing marketing resources. For instance, rewarding your best customers can stop them from leaving while encouraging them to buy more often and more items can increase their lifetime value. Moreover, attracting customers who resemble your best customers or reactivating old customers who have stopped buying from you can boost customer acquisition. Additionally, delivering relevant offers, messages, and experiences to each customer can increase satisfaction and trust. Finally, allocating resources and efforts to the most valuable and responsive segments can make your marketing efforts more efficient and effective.

5 What are the challenges of segmenting customers by frequency and basket size?

Segmenting customers by frequency and basket size can also pose some challenges to your retail marketing strategy. Accurate and reliable data must be collected and analyzed on customer purchase frequency and basket size, as well as other factors that may influence their behavior. The right criteria, method, and tool must be chosen to segment customers by frequency and basket size, which should also be updated and refined regularly. It is important to balance the marketing mix and budget in order to target each segment appropriately and efficiently, without neglecting or overloading any segment. Lastly, the impact and performance of frequency and basket size segments must be measured in order to determine the success of retail marketing objectives and KPIs such as sales, revenue, profit, ROI, or customer satisfaction.