How to avoid over-discounting using RFM groups

You will learn

Learn how to use RFM (recency, frequency, and monetary) groups to avoid over-discounting and losing potential revenue.

Identifying groups that benefit most from coupons

While coupons are a great way to incentivize customers to make a purchase, it is important to tailor your discounting strategy for different RFM groups, since coupons can impact your brand’s revenue and margins.

Consider testing larger or more frequent discounts for RFM groups whose purchases have become less recent, like At risk or Needs attention. Meanwhile, you can test smaller discounts for groups like Champions or Loyal, or use discounts as an incentive to take other actions like leaving a review. RFM groups reflect purchase behavior, so check email engagement separately and measure each group’s response to discounts.

To analyze the engagement of your RFM groups, you can:

• Build RFM segments and run an engagement report to see a breakdown of how engaged each group is.
• Use the audience performance report to compare attributed revenue or conversion totals across your RFM segments, depending on the metric selected. Star the segments in Lists & segments so they appear in the report.

Examples of discounts to use for RFM groups

Champions and Loyal

The Champions and Loyal groups contain some of your best customers who don’t always require discounts to make purchases. In order to maximize margins, consider removing or lowering discounts to these cohorts of customers who are already brand loyal.

However, discounts can still be valuable for these groups. You can send these customers coupons that incentivize them to take certain actions like starting a subscription, referring a friend, or leaving a product review. Coupons can also be a good way to keep these customers in their usual buying cycles, and encourage purchases if they start to deviate.

At risk and Needs attention

The At risk and Needs attention RFM groups contain customers whose purchases have become less recent. Their email engagement may differ, so use the engagement reports above to check it. Coupons for these groups should incentivize customers to make purchases by providing a discount that is generally larger than your standard welcome series (if applicable). Consider targeting these groups with coupons for your best-sellers and other items they may like. Additionally, take advantage of coupons in abandoned cart flows to provide discounts at key moments during the purchase process.

Send coupons to specific RFM groups

Create RFM segments

By creating segments based on a profile’s RFM group, you can target the specific groups with a discount or send different discounts to each RFM group. These segments can be used to send personalized campaigns. For example, you may want to include a coupon in emails going to your current At risk or Inactive customers to incentivize them to purchase.

To create a segment based on an RFM group, use the following condition with your desired group set as the value (i.e., Champions in the example below).

Properties about someone > Current RFM group > equals > RFM group name

Using Show/Hide logic

You can also dynamically show different content in your emails based on a profile’s RFM group using Klaviyo’s show/hide logic in templates. This feature allows you to personalize your email content based on information you have gathered about your subscribers, so each recipient has a highly relevant marketing experience.

Show/hide conditions based on profile data (i.e., profile or custom properties) can be used in any Klaviyo email. In this case, you can use the Current RFM group or Previous RFM group properties to dynamically display discounts based on the recipient’s RFM group.

For example, you can send the same email to a group of customers, but display different discounts based on the recipients’ RFM group. To use event data, such as the cart details from Started Checkout, the email must be in a metric-triggered flow. Reference the event that triggered that flow, not any past purchase or checkout event.

If your saved template uses HTML and you have permission to edit templates, create a drag-and-drop copy before following the block settings below:

1. On the Templates page, open Email: saved. Open the HTML template’s 3-dot menu and select Clone to drag and drop.
2. Open Converted templates. When the copy shows Ready to use, click its name to open it and review the converted content.

To add an RFM condition in the drag-and-drop editor:

1. Select the block or section containing your coupon, then open Display.
2. Under Show/hide logic, select Use code and enter one of the conditions below. Click Save.
3. Repeat for each discount block or section. Click Preview and check profiles in each target RFM group, as well as a profile without RFM data, to confirm that each sees the intended discount.

The condition you need to show a piece of content to a specific RFM group is:

person|lookup:'Current RFM group' == 'Champions'

In this example, Current RFM group is the property being referenced in the condition, and the specific property value is Champions. You can replace Champions with the specific RFM group you are targeting in your messaging.

Similarly, to hide a piece of content for a specific RFM group, use the condition:

person|lookup:'Current RFM group' != 'Champions'

!= means "does not equal", so this condition only displays content to recipients that are not in the Champions RFM group.

Using flow branching

You can also use RFM properties to send discounts to specific RFM groups in your flows. In addition to dynamically displaying content using show/hide logic, you can use a split based on a profile’s RFM group to send different group members down different flow paths. Configure each path with Properties about someone > Current RFM group > equals and the group you want to target.

1. To add a new split, drag Split from Logic onto the flow and select it.
2. Select Add path criteria, set the RFM condition, and save. If the button says Apply, click it, then click Save on the split to save the change.
3. Select Add path for each additional RFM group you want to target, then configure and save its criteria. Add the appropriate discount message to each path.

If your account still shows Conditional split, use the same RFM property condition to create a yes/no branch. Existing conditional splits continue to work.

For example, if you have a flow with paths based on RFM group, you can prioritize coupons in emails going to the Needs attention or At risk groups so they are incentivized to purchase. Meanwhile, for groups like Champions or Loyal you can test other content like special offers (e.g., limited drops, events, etc.)

Measure performance

Funnel analysis

To identify the RFM groups that are the most receptive to discounts, you can use Klaviyo’s funnel analysis report paired with RFM group properties.

Create a funnel for each RFM segment using the suggested steps below. In Funnel analysis, click Create funnel, name the funnel, and select the RFM segment under Filter by segment (optional). This funnel view will allow you to monitor the customer journey after sending out an email or SMS with a coupon code.

1. Received Email or Received SMS
2. Clicked Email or Clicked SMS
3. Added to Cart
4. Placed Order

By creating this funnel for each RFM group you can then compare performance across groups and identify which group is most likely to convert when presented with a coupon code.

For comparison, create another version of the funnel for each RFM group and filter the message steps to a comparable email or SMS without a coupon. Keep the RFM segment, remaining steps, reporting period, and completion window the same. Removing the message filters includes messages both with and without coupons, so it does not create a no-coupon comparison.

If the coupon-message funnel has a higher completion rate, use that result to guide further testing. Compare the additional order value with the cost of the discounts before deciding whether the offer is worthwhile; the funnel counts profiles and does not measure profit.

Custom reports

You can also measure the value of providing RFM groups with a discount code by using Klaviyo’s custom reports.

Once your RFM groups have received a coupon, create a single metric deep dive report to measure the value of orders that recorded each code:

1. Select Placed Order, then select Value and SUM to report total order value.
2. Group by the discount-code property supplied by your ecommerce integration, such as Discount Codes for Shopify.
3. Select the reporting period and click Save & Run Report.

This report shows the value of orders that recorded each code, not all orders from profiles who received it.

Static codes can be shared, so a code used by someone outside its intended RFM group can appear in that code’s results. Use the report to assess code usage, rather than treating it as an exact record of purchases by the original recipients.

Other use cases

In addition to sending different discounts to profiles based on their RFM groups, you can also send other personalized messaging or visuals. Consider the following use cases:

• Personalize the products that certain customer groups see vs. others by product value or type. For example, Champions or Loyal customers see higher value items while Inactive or At risk customers see lower-cost items.
• Show a section about leaving product reviews to those only in the Champions, Loyal, or Recent groups.
• Present loyalty points information:
  • For those in Champions, Loyal, Recent, and Needs attention groups, show their loyalty status or a call to action to join the program.
  • For those in Inactive or At risk, explain your loyalty program and the value they will receive after purchases.
• Target Recent customers with a subscription, refill, or complementary product to encourage repeat purchases and help them move into the Champions or Loyal group.

Additional resources