What is RFM? Top 5 Ways to Elevate Your Digital Strategy & Increase Direct Bookings
By Margaret Mastrogiacomo , EVP, Strategy at NextGuest
The digital landscape is constantly evolving. Hotel digital marketers continue to seek more effective and cost-efficient ways to reach the right audience, at the right place, and at the right time. But do hotel marketers truly know the value of each and every guest and, more importantly, do they understand what motivates guests to choose their hotel, then choose to stay again?
So, what's the secret to understanding the value of your guests and knowing your most profitable guest? The answer lies in RFM (recency, frequency and monetary) modeling. In a nutshell, this means:
- How recent a guest has stayed (recency)
- How frequently a guest stays (frequency)
- Total monetary value of a guest (monetary)
How is RFM analysis done?
RFM analysis looks at all of the bookings and transactions in your customer database during a specific time period, usually the last 2-3 years. The purpose of the database analysis is to determine the value of your guests based on how much they spend with your hotel brand, how often they stay with your hotel brand, and how recently they've made a booking.
With the combined power of RFM data, hotel marketers can get a deeper understanding of a guest's relationship with the brand and use this data to reach a more qualified audience with personalized messaging.
How is RFM modeling used to build segments?
Based on RFM, you can classify your guest database into different value segments. Here are some example segment classifications based on recency, frequency, and monetary values:
High-Value RFM Classifications:
Premium Best Guest:
High revenue, active guests who have stayed within the last year, and have stayed with your hotel brand three or more times.
- Best Guest: High revenue, active guests who have stayed within the last year, and have stayed with your hotel brand two or more times.
- Potential Best Guest: High revenue, active guests that have stayed within the last year, and have stayed with your hotel brand at least once.
Lower Value RFM Classifications:
- Frequent Smart Shopper: Low revenue, active guests that have stayed with your hotel brand within the last year two or more times.
- One-Time Smart Shopper: Low revenue, active guests that have stayed with your hotel brand within the last year one time.
Inactive Guest RFM Classifications:
- Former Best Guest: High revenue, inactive guests that haven't stayed within the last two years but have stayed more than two times.
- Former Potential Best Guest: High revenue, inactive guests that haven't stayed within the last two years but have stayed at least twice.
- Former Frequent Smart Shopper: Low revenue, inactive guests that haven't stayed within the last two years but have stayed at least twice.
- Former One-Time Smart Shopper: Low revenue, inactive guests that haven't stayed within the last two years but have stayed one time.
These are just some examples of RFM segmentation to help digital marketers better classify the value of past guests.
How can you utilize RFM modeling to elevate your digital strategy and drive revenue?
Classifying your RFM segments is just the beginning. How you utilize these RFM segments on your hotel website and in your digital marketing strategy and campaigns will achieve the most impact on your bottom line. From design to personalization and multichannel campaigns, it's crucial to take a holistic approach when integrating RFM segments into your digital strategy. Here the top5 ways that RFM segmentation can increase direct bookings:
1. Build customer personas and get to know your guests.
So, you've classified your guest profile data into RFM segments. Now what? While it's great to see a comprehensive list of names classified under 'Premium Best Guest' (aside from an average monetary value and stay frequency) what exactly does this really mean, and more importantly, who's included in this segment, what are their online behaviors, and what do they love about your hotel brand?
The answer lies in guest data.
- Analyze demographic data: Take a deeper dive into your hotel's RFM segments and make note of demographic trends. For instance, for your Premium Best Guest (those who stay often and spend a lot with your brand), you may find that this is an older demographic with a higher household income. Does it skew male or female? What room type do they stay in most often?
- Analyze customer interests: Once you make note of demographic trends, look for trends in interest and behaviors. Do you notice that customers that fit this demographic are more likely to open an email when it contains food and wine? Art and culture? Overall, what campaigns this demographic engages with most can be very revealing to the demographics' top interests.
- Analyze customer reviews: Once you get more insight into your target demographics' interests, it's important to look at reviews from this segment to uncover both the emotional and functional benefits this segment associates with your hotel brand. A functional benefit could be the location while an emotional benefit could be the stylish décor or the communal spaces for socializing.
Once you analyze these key data points, you should start to get a better understanding of who your high-value guests are, what they are interested in, and what they love about your hotel. With these insights you can shape a customer persona, give it a name, and begin building website content and campaigns that go beyond targeting a blanket demographic with a human-centric approach that resonates with potential guests.
These customer personas can influence every aspect of your digital strategy from website design, user experience, and content to digital marketing and your CRM strategy.
2. Use RFM to fuel your digital marketing. By now, many hotel marketers are using customer data to build look-a-like audiences across marketing campaigns to reach new potential guests that match the demographics and travel planning behaviors of past guests. Hotels can take their CRM data and utilize RFM segmentation to reach new potential guests that match their high-value guests and are more likely to book at a higher price point. RFM segmentation to fuel your digital marketing doesn't just allow you to reach high-value guests, it also allows you to reach value-driven guests. For instance, if you need to launch a campaign to fill last-minute inventory at a lower ADR, it's a good idea to market to Frequent Smart Shoppers (segment of guests that stay frequently at a lower price point).
- Implement customer data RFM segmentation with intent-display: Using your RFM segmentation to build act-a-like audiences on travel ad networks like Sojern and ADARA and layering on intent data is a highly effective strategy to reach high-value potential guests during the travel planning process. It is also an effective strategy to promote value-driven special offers to Frequent Smart Shoppers who will book rooms at a lower ADR or discounted rate in a shorter booking window.
- Implement customer data RFM segmentation on Google Display Network: Similar to travel ad networks, you can use your RFM segmentation with Customer Match targeting on Google to build look-a-like audiences focused on a high-value segment or value-driven frequent traveler.
3. Use RFM to implement data-driven design. Once you build personas to understand who your high-value guests are, their interests, and what they love about your hotel, next it's important to understand what they want and need from your hotel website. For instance, if when exploring your RFM segments you find that your Premium Best Guest is predominately over the age of 55, you may want to go with a more traditional navigation structure on your hotel website vs hamburger navigation. If you find that their interests tend to center around arts and culture, your website design should prioritize a calendar of events in content hierarchy ensuring events are prominently displayed and easy to navigate.
- Build customer user flows. Based on your RFM segmentation and customer personas, your website sitemap should include customer user flows for each target segment that map out the top pages each segment visits. This will provide the design team with an understanding of what content is most important to each segment to prioritize in the UX of the website design.
- Create mood boards. To build an aesthetic that resonates with each audience, creating a mood board with imagery and color schemes that capture the essence of each customer persona is an important step in inspiring a website design that will resonate with high-value past and potential guests. For instance, if you find that your Frequent Smart Shopper segment is comprised of mainly the Millennial demographic, the website design should be more experiential and destination focused with lifestyle content and imagery.
4. Utilize RFM in your content personalization strategy. Website content personalization focused on CRM data is highly effective in driving conversions. Take your personalization strategy to the next level by utilizing RFM segmentation to personalize content throughout your website. For instance, if you know that your Premium Best Guest typically stays in a suite and purchases breakfast, create a suite package including complimentary breakfast and serve this package first when a Premium Best Guest visits your website. If the Frequent Smart Shopper segment prefers a more affordable room type but tends to spend more money at the destination, serve this website visitor a more affordable room type and a call-out to a map of things to do nearby the hotel.
5. Launch RFM focused multichannel and CRM campaigns. Launching campaigns that are targeted towards profitable, high-value guests is one of the best ways to increase revenue. Multichannel campaigns focused on a high-value RFM segment should have more luxury and experiential messaging across channels while multichannel campaigns focused on a more price-conscious segment should be centered more on savings. This is where building customer personas and uncovering both the functional and emotional benefits they associate with your hotel brand become crucial to launching campaign messaging that resonates with potential guests. The same strategy applies to your hotel's CRM campaigns. When deploying CRM communication, messaging, imagery, and design should be tailored to each RFM segment to increase CTR and engagement.
Reach the right segments to accomplish your goals and KPIs
When analyzing your RFM segmentation in your CRM data, make sure the segments you are targeting are profitable. For instance, while an RFM segment may spend less money with your hotel brand, if the cost per acquisition is low and it's a large enough segment of your existing and potential customer base, it may be worth investing more than a high-value segment that may be expensive to acquire. In evaluating the profitability of each RFM segment to help you reach your revenue goals faster, the focus should be on cost per acquisition, addressable market, and revenue potential.
Overall, RFM segmentation of your CRM data can be a powerful tool to launch a more personalized, effective, and cost-efficient digital strategy. Whether your top priority is design, content personalization, digital marketing, or simply getting to know your customers better, integrating RFM segments into your digital strategy will make your digital presence more impactful resulting in more direct bookings and ultimately, more loyal guests.
Margaret Mastrogiacomo leads creative strategy and provides strategic direction for marketing initiatives including copy, website design, and campaign development for NextGuest clients. Her responsibilities include strategy and consulting, campaign management, new product development, and more. She has been instrumental in developing award-winning multi-channel marketing campaigns and interactive mini-sites and applications for NextGuest clients.More from Margaret Mastrogiacomo
NextGuest Digital uses the latest in digital marketing technology to assist hotel brands in crafting their digital presence. Through the agency's smartCMS®, Content Personalization Engine, Smart Data Marketing, and other innovative initiatives, hoteliers see a drastic boost in direct bookings, as well as lower distribution costs and an increase the lifetime value of guests. NextGuest Digital is part of NextGuest, an all-encompassing partner that helps hoteliers acquire, engage, and retain their next guest. Based in New York City, the company is comprised of NextGuest Digital, CRM, Labs, and Consulting. www.nextguest.com | (800) 649-5076 | [email protected]
Phone: +1 212 752 9425