I recently received a review copy of The American Retail Value Proposition: Crafting Unique Experiences At Compelling Prices by Kyle B. Murray. Among other gems, the author presents the RFM (recency, frequency, monetary spend) model for determining customer value.
Dr. Murray writes: “(O)ne of the best ways to predict future behavior is to look at past behavior. In other words, if you want to know how likely a customer is to shop at a retailer, how soon they will return, and how much they will spend, it is helpful to know how often they have shopped at the store in the past, how recently they visited the store, and how much they usually spend. This perspective has led retailers to begin to think of customer value in terms of recency, frequency, and monetary spend (RFM) variables.”
My family and I frequent a local Papa Murphy’s Take N’ Bake Pizza store, and have for years. Every time I call in an order, they request my phone number. Having me repeat my number every time I call increases the time and effort required to complete the transaction and is out of step with even basic integrated guest intelligence software/POS systems in 2016. But what’s even more egregious, given the ability to track when a customer made their last purchase, how often a customer makes a purchase, and their total spending history, is to hear a Papa Murphy’s employee ask, “Have you baked our pizzas before?” EVERY TIME they hand my pizza over the counter.
I want to say, “Well, yes. I’ve bought more than 200 pizzas from this store.”
On the other end of the spectrum is my local King Soopers (Kroger affiliate) supermarket. Because my contact information is linked to my “SooperCard” loyalty program ID number, every time I visit a store, King Soopers knows exactly when I was there, how often I was there, and how much I spent during each store visit. In addition, they know exactly what I bought and smartly use this intelligence when tailoring direct mail coupons that are sent to my home monthly. And for customers who don’t use coupons or forget to bring them along, they can still (as SooperCard loyalty program members) benefit by receiving SooperCard discounts that are automatically calculated and deducted at the register.
If you are not already doing so, begin quantifying your customers’ value using the RFM model. The customer intelligence you gain by tracking recency, frequency, and monetary spend will enable you to identify your most loyal customers, determine their preferences, calculate customer lifetime value (CLV), and tailor marketing programs to different market segments. You will also avoid the embarrassment of appearing unaware that a customer has purchased from you more than 200 times in the past.
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