❯ Effective Targeting with Transactions & RFM

STP. Segmentation, targeting, and positioning. The holy grail of marketing. I'd wager the most effective marketing teams spend the bulk of their time STP—living in the arena of market orientation and customer understanding. They don'tover-invest on purpose or tactics. Marketing strategy lies in STP, and the trio sets out to answer organization-level decisions:

• Segmentation - what market are we aiming to win in and what groups are in that market?

• Target - who are the most valuable groups or customers in that market? What cohort does our company target?

• Positioning - how do we show up in the market and to our target?

In this post, we're getting practical on Targeting. We'll assume you've got market-orientation figured out from Segmentation. So, how do you take the next step in Targeting?

Introducing RFM. RFM is your cheat-sheet to effective and strategic targeting. It stands for:

• Recency - When was the last time your customer purchased from your brand?

• Frequency - How often do they purchase from you?

• Monetary value - What is their average transaction and total spend with you?
  

The purpose behind RFM is to a customer's purchase behavior to categorize, then use the categorization for Targeting. Here's how:

1. Define the levels of RFM for your business. It will vary based on your industry and purchase cycle (Grocery would be significantly different than Automotive).

2. Create customer categories based on RFM levels. As an example, you might have four: Not Committed, Potential, Valuable, and Premium.

3. Map customers to categories based on RFM behavior. As an example, High spend + high frequency/recency equals a Premium customer.

Three steps to a highly actionable targeting plan. Get the data, align the stakeholders, and take action. You can use this information for existing or new customers. Use look-a-like audiences to find new customers who have a high propensity of becoming Premium, or build campaigns around your Potential customers to trade up into Valuable.

MISSING THE CONTEXT

This framework completely misses the person behind the numbers. Qualitative insights should follow shortly after: do they match your intended target audience(s)? What is your product or experience actually solving for this cohort? How else are they engaged with your brand? These insights focuses innovation in the right direction: towards the needs of the customer.

BALANCING REACH VERSUS TARGETING

The House of Broad Reach has their fans in the same way Targeting Shops do. Both work, and they work better together. While I was at 84.51 / Kroger, they had 52 consecutive quarters of growth off a heavily Targeted loyalty strategy. Now, they're swinging the pendulum into Reach. Their Reach efforts will be more effective because of the Targeting capabilities they've built.

IDENTIFYING TARGETS BEFORE LAUNCH

RFM works great when you target an existing base of customers—but what happens if you don't have any customers? Here, we turn to market research. Use market research to get an idea of intent, usage, and other qualitive or quantitative measures. Run a Van Westerndorp study as a starting point on price. Analyze trends and the competition with a Marketing Mix framework. Get creative, stay scientific.

Snapshot:

Christmas of 2022 was the first time we felt like parents. Clark was nearly two. Each gift you opened you wanted to play with; it was the joyful innocence everyone talks about. Mom cried a lot that Christmas. Between opening presents and big boy briefs, it was a moment we knew we'd both cherish—and never have again.

Striving for better,

Justin Pichichero