RFM Segmentation in destination marketing

Retrieved from flickr.com
Retrieved from flickr.com

Customer engagement management is all about getting the most profit from your customers.
A destination marketing organization, like any other business, needs to know the answer to the big question: How profitable are my different customers?
Therefore, it is important for them to segment their customers based on their past purchase behavior. With the help of the Recency – Frequency – Monetary Value (RFM) segmentation DMO’s get a clearer picture of the value of each customer.

The RFM suggests that the value of a customer can be determined by his/her past purchase behavior. During the analysis the business has a closer look at the last purchase date (Recency), the purchase frequency (Frequency) and the amount spent (Monetary Value) by each customer (Peelen & Beltman, 2013).

One way of getting the RFM of your customers is to purchase one of the various data-mining tools that generate ready-made RFM classification reports. Another way is to perform the RFM segmentation yourself. Unlike many other techniques, RFM segmentation is easy to perform as it is based on past customer results.
You create a list ranked from highest to lowest recency and segment it into five equal segments. Then you repeat the step with a ranking of highest to lowest frequency for each recency segment. Finally, you do the same for monetary. The result is an overview of 125 segments with RFM scores ranging from 555 to 111 (Dodwell, 2015).

Now the DMO can take the outcome as a starting point to address the different RFM segments with the right marketing activities. Particularly two segments might be of high interest for your company:

Segment #1 “High Recency, High Frequency, High Monetary”
This is your DMO’s most valuable and loyal customer segment. Make them feel special! As they probably already know the destination very well, try to surprise them with a unique offer. To assure the they have never done something similar before, you might want to create a new offer – and maybe add a little discount…

Segment #2 “High Recency, Low Frequency, Low Monetary”
This segment comprises your newest customers. Appreciate their recent attention to your destination with a nice welcome offer e.g. in form of a discount for the next trip. You as a DMO might also want to ask the customer for feedback about the first touch points with the company to assure that you can fully address your new customers needs in the future.

To conclude, RFM segmentation is an easy-to-perform and very helpful data mining technique for destination marketing organizations. It gives a clear overview of the profitability of all customers and therefore helps DMO’s to efficiently address each segment with the appropriate marketing activities.

Bibliography

Peelen, E. & Beltman, R. (2013). Customer Relationship Management (Second Edition). Amsterdam: Pearson Education Benelux BV

Dodwell, A. (2015). Effective Email Marketing Strategies – Segmentation RFM. Retrieved from http://www.dnb.com/connectors/use-RFM-segmentation-for-effective-email-marketing.html#.VhFWzd7BFd0

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3 thoughts on “RFM Segmentation in destination marketing”

  1. Dear Laura,

    your post is very well structured and worth to read. You make your points clear and underline your statements by the use of academic statements. To my mind you should add your sources at the end of the text though, so that interested members of the academic community (e.g. your fellow students, could transversely read the certain sources-

    I appreciate the structure of the text. You can easily follow your text to the final conclusion. What you might add could be practical examples to the certain segments. Are there benchmarks in the industry that could illustrate your statements?

    This might be an interesting addition to your post.

    Niklas

    Like

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