Smart customer segmentation starts with choosing the right basis — and it should be both actionable and profit-driven.
Quick Diagnosis:
If you’re segmenting only by basic demographics (age, gender, etc.), you’re likely missing out on real sales-driving insight.
The best segmentation strategies are behavioral and value-based.
3-Step Fix:
Segment by Behavior & Purchase History
– Track how often customers shop, what they buy, and how much they spend.
– Example segments: high-frequency buyers, seasonal shoppers, discount-only buyers.
Use RFM Analysis (Recency, Frequency, Monetary Value)
– Categorize customers by how recently they bought, how often, and how much.
– This helps prioritize outreach (e.g., VIPs vs. reactivation targets).
Add Psychographic or Intent Data (if available)
– Collect info on lifestyle, shopping motivations, or preferences via surveys or loyalty programs.
– Tailor offers/messages by persona (e.g., eco-conscious buyers vs. fashion trendsetters).
RFM segmentation is one of the most effective, no-nonsense ways to drive targeted action from your existing customer base.
Quick Guide: Setting Up RFM Segmentation
What is RFM?
R = Recency (How recently did the customer purchase?)
F = Frequency (How often do they purchase?)
M = Monetary (How much do they spend?)
3-Step Setup:
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Extract & Clean Customer Purchase Data
– Pull order history (at least last 12 months) from your POS, CRM, or eCommerce platform.
– For each customer, calculate:-
Date of last purchase (Recency)
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Total number of purchases (Frequency)
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Total amount spent (Monetary)
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Score Each Customer (1 to 5)
– Assign a score of 1 (low) to 5 (high) for each R, F, and M factor:-
Top 20% = Score 5
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Next 20% = Score 4, and so on
– Example: A customer who recently bought, buys often, and spends a lot = R=5, F=5, M=5
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Create Segments Based on Score Patterns
– Key segments to use immediately:-
555 (Champions): Treat like VIPs — early access, exclusive offers.
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155 (New Big Spenders): Welcome them, build loyalty fast.
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511 (Loyal but Low Spend): Upsell or cross-sell to increase value.
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331 or lower (At Risk): Win back with targeted discounts or reminders.
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Use these segments to customize email campaigns, in-store service levels, and promotional offers.
