Using RFM to Measure 2-Way Loyalty in the New Economy

Consumers are Back, But Different. Loyalty Should Be, Too.

Your customers have returned to you, and you love them thhhhiiiiis much. But how are you measuring that transactional embrace?

Companies need to be careful not to confuse customer satisfaction with customer loyalty; two very different measurements. Because while people are returning to stores, hotels and airplanes by the boatload, the ways in which they spend and what they expect from the experience has changed since pre-pandemic days. This doesn’t just alter the factors that measure brand loyalty – it makes more urgent the need for a brand to prove its loyalty to its customers.

Consider: Recent research by Bond reveals that while 30% of consumers strongly agree they are loyal to a brand, just 20% believe a brand is loyal to them. Yet 46% of marketers believe their brand is loyal to their customers.

Let’s Use RFM to Measure Customer Loyalty!

Organizations don’t require complicated measures to track mutual loyalty in the post-pandemic realm. Rather, they should untangle its complexities with get-to-the-point approaches. And one of the simplest, most reliable is an old standby: recency, frequency and monetary, or RFM. Its disarmingly straightforward formula alone is enough reason to use it to gauge two-way loyalty.

For the unfamiliar, here’s the pocket guide: RFM scores customers on three measures – recency, frequency and monetary – and then averages the values. Customers with the highest scores are the most valuable.

But there’s no reason an organization can’t apply RFM to itself, to measure how its customer perceive its loyalty to them.

Using RFM to Gauge Customer Loyalty –?5 Measures

Hey, strange times require fresh thinking. So let’s update RFM with considerations that reveal the customers’ perspective during their transactional embrace. Following are the three standard RFM measures, plus two supporting steps that reflect the times.

When was the last time you saw the customer? The more recent the activity (which can be days, weeks or years, depending on the item), the more likely the shopper will have a brand or product in mind and be convinced to use it again. Here’s the loyalty opportunity: Fancy up those “we miss you” messages with overtures. Send an email or direct text, via a rewards program, to ask how their long-ago purchase of detergent, leggings, pie or power drill met expectations. Find out why it’s been so long. At the same time, don’t ignore frequent customers. Prove their business means a lot with a standout thank you like a free upgrade or a customer spotlight on social media. Research shows 85% of people remember the names of companies that give them promotional products.

How are repeat customers spending? Traditionally, frequent customers are more likely to continue spending, giving them a high value. But the pandemic has altered the ways people shop – routing more purchases online, for example, or causing shoppers to drop retailers that did not carry what they needed. Here’s the loyalty opportunity: Category spending went awry in 2020, so informing customers that the goods and brands they wanted are now available may require more careful analysis. How has customer spending shifted among categories or services? Did they switch brands and if so, does evidence indicate it was due to price or availability?

Find out why they came in the first place. Let’s extend those frequency measures to find out why new customers visited. It could have been a promotion, but it might have been the result of limited service or product availability during the pandemic. Here’s the loyalty opportunity: Turn one-time consumers into frequent visitors by comparing their demographics and preferences with those of long-time customers with similar traits. Software platforms or third-party experts can run the quantitative and qualitative analytics to achieve this. Then use these insights to predict what new shoppers will likely want or need, based on the patterns of existing customers, and send personalized offers to measure response.

Respect the value in all customer potential. The monetization part of RFM requires recalibration because the pandemic caused register turbulence that threw year-over-year spending comparisons out of whack. However, measuring July 2021 sales-per-customer to July 2020 could reveal which shoppers are more financially confident, and which are less. Here’s the loyalty opportunity: Yes, RFM is designed to identify the most valuable customers, but those who are financially cautious will respond to offers that tell them they are still valued. Alerts on less-expensive flights, overstock specials and low-traffic restaurant deals can be tailored to those cutting back. Blaze Pizza, for example, has sent its members offers for free cheesy bread in return for their first $15 orders in August.

Measure channels, then blend for ease. It’s safe to assume merchants across all categories are seeing fewer of their customers in the flesh. An estimated $468 billion is expected to be spent online in 2021, and more than half of online consumers –?54% – are expected to make their purchases via mobile. This will likely continue. Here’s the loyalty opportunity: The number of channels through which customers engage reveals not just their comfort with technology, but the pressures of their lifestyles. Consumers don’t think “dot-com” when going online; they think, “diapers, fast” or (in my case) “chocolate, now.” Use opt-in text communications offered to loyalty members to ask them the fastest, easiest way to serve them.

All of these measures have one critical factor in common: They give the customer a voice. The clincher –?proving your loyalty to them – requires acting on it. And why wouldn’t you? It is unsinkable proof that a brand cares, and one all brands can get their arms around.

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Jenn McMillen, nationally renowned as the architect of GameStop’s PowerUp Rewards, is Founder and Chief Accelerant of?Incendio,?a firm that builds and fixes marketing, consumer engagement, loyalty and CRM programs. Incendio provides a nimble, flexible and technology-agnostic approach without the big-agency cost structure and is a trusted partner of some of the biggest brands in the U.S.

This article originally appeared in The Customer.