You know you need to set up a loyalty program to drive higher LTV and profitability for your brand. But it’s not as simple as implementing a cookie-cutter program that treats all customers equally.
Instead, you need to be more thoughtful about loyalty segmentation to make the most of this tactic. We’re here to guide you through this complex topic and simplify the process for you so you can get started segmenting your customers and creating life-long fanatics for your brand.
You’ll have a clear understanding of which of the different methods of segmentation makes the most sense - be it RFM (recency, frequency, monetary), behavioral, customer lifecycle, or something in between. We’ll then walk you step-by-step through creating your different segments and getting the ball rolling.
What is loyalty segmentation?
First things first, what is loyalty segmentation? Simply put, it’s the process of dividing your customer base into distinct groups based on their loyalty to your brand.
But in order to understand why you’d want to segment your customers based on loyalty, we have to take a step back and discuss customer loyalty in general.
Overview of customer loyalty
We probably don’t have to remind you how expensive and challenging it is to acquire new customers in 2024. It’s far cheaper and easier to encourage repeat purchases from existing customers. This is the appeal of customer loyalty.
But it’s not just about squeezing more profits from your customer base. Emphasizing loyalty helps you build strong, long-lasting relationships where customers consistently choose your brand over others.
Not only are loyal customers more likely to spend more over time, but they can also be your brand’s biggest advocates. They’re essentially a free marketing channel as they bring friends, family, colleagues, and even strangers into your ecosystem.
Now, you’re probably wondering how you can transform your customer base into diehard fans. This requires an understanding of what drives loyalty for your customers. And, that’s where segmenting customers based on loyalty status comes into play.
What is segmenting customers based on loyalty status?
So, what is loyalty segmentation? Again, this means grouping customers into categories that reflect their engagement and behavior with your brand. It’s how you personalize your loyalty program.
These categories typically range from first-time buyers to loyal advocates who consistently engage with your business. Each group of customers has their own unique characteristics, and you’ll tailor your marketing efforts accordingly.
For example, first-time buyers may need incentives to return, while your VIP customers might respond better to exclusive offers or early access to products. Here’s a quick look at common segments:
- New Customers
- Repeat Buyers
- VIP Customers
- Churn Risks
We’ll highlight each of these groups in greater detail later on.
Why it’s so important to segment properly
While it’s far easier to create a one-size-fits-all loyalty program and just let it rip, you’re selling this tactic short if you fail to personalize your messaging and offers to each unique segment.
It goes without saying that your communication and reward system for a first-time customer should be different from someone who has placed countless orders with your brand - or someone who hasn’t purchased in a year and you’re trying to bring back.
We’ve found that 64% of customers are willing to spend more when the brand personalizes the experience for them. That alone should be enough to justify taking the time to create various segments.
But, there’s more to the story. Segmentation helps you allocate resources more efficiently as you can focus your efforts where they’ll have the greatest impact - like on VIP customers who provide the biggest lift to your bottom line.
Or, you can prioritize reducing churn by dedicating your budget towards engaging at-risk customers who haven’t interacted with your brand in some time.
Loyalty status segmentation also helps you generate better data for your brand so you can make more clear, emotionless decisions about customer retention. That being said, segmentation is not something you should overlook. Let’s unpack the different methods below.
The most common customer loyalty segmentation methods
The first step in segmenting your customers based on loyalty is figuring out how you’re going to categorize them. There are four common methods brands use.
RFM segmentation
This is the most widely used method for customer loyalty status segmentation. It features three different classifications:
- Recency: When did a customer last make a purchase?
- Frequency: How often does a customer make purchases?
- Monetary Value: How much money did a customer spend over a given period?
Categorizing customers in this manner helps brands easily identify their more valuable and engaged customers along with those who are becoming less active.
For example, customers who have made frequent, high-value purchases recently can be segmented as VIPs and rewarded accordingly with exclusive offers. Meanwhile, those who are at-risk can be hit with enticing offers to bring them back into a more loyal status.
Customer lifecycle segmentation
You can also segment customers based on where they are in their journey with your brand. The segments are typically broken out as:
- New Customers: They’re still getting to know your brand.
- Active Customers: They’re regularly engaged and return frequently.
- Lapsed Customers: They haven’t made a purchase in a while and are at risk of leaving.
- Dormant Customers: They haven’t purchased in a long time and re-engagement strategies may be necessary to salvage the relationship.
Businesses use this approach because they can tailor their marketing and retention efforts to address the specific needs of each group.
For instance, new customers might need incentives to make their second purchase, while lapsed customers might respond better to win-back offers or personalized reminders.
Behavioral segmentation
Another method for customer loyalty status segmentation involves assessing a customer’s behavior. It focuses a bit less on purchase history and more on specific interactions with your brand. Here are the different ways you can segment based on behavior:
- Purchase Behavior: What products they buy, how often they buy, and their average spend.
- Engagement: How customers interact with your website, app, or social media channels. This can be likes, comments, shares, etc.
- Brand Interaction: How often customers participate in surveys, leave reviews, or refer friends.
Some brands believe this tactic allows for deeper personalization. You can tailor offers and communications based on the behaviors that matter most to your brand.
Maybe you’re trying to prioritize social media growth - you can focus efforts on rewarding your most engaged customers rather than those who simply spend the most. They may be more interested in social-based rewards.
On the other hand, customers who exhibit high-spending behavior but don’t engage with your brand outside of placing orders likely only care about purchase-driven incentives.
Hybrid segmentation
Many brands end up getting stuck at this step because they don’t feel that one of the three methods for customer loyalty segmentation above resonates. That’s where hybrid segmentation comes in.
This approach is far more flexible. You can blend RFM analysis with behavioral insights to categorize customers based on both their spending habits and engagement with the brand.
Hybrid segmentation can drive better results while unlocking a deeper level of customer understanding for a brand. For example, a customer could be high-value in terms of spending but low-engagement in terms of social interaction.
Tips on getting started with brand loyalty segmentation
No matter which method you rely on for segmenting customers based on loyalty, we want to leave you feeling clear and confident in your next steps. So, we’ll walk you through getting your loyalty program off the ground - starting with defining a goal.
It all starts with a goal
There’s probably a specific reason that brought you here today to learn about brand loyalty segmentation. Maybe you’re trying to improve customer retention. Or, perhaps its average order value (AOV) that needs a lift. It could be as simple as re-engaging dormant customers.
Whatever the case, your goal will dictate the type of segmentation you use and how you measure success. Retaining high-value customers might mean relying on RFM segmentation to target those who spend the most and shop frequently. In contrast, re-engaging customers who are starting to become at risk of churning might be better suited to lifecycle segmentation.
You should develop a SMART goal - specific, measurable, actionable, realistic, and timely. An example of this could be: I want to increase repeat purchases from top-tier customers by 10% over the next 3 months using RFM segmentation.
This type of goal is much better than simply saying “I want to improve customer loyalty.” It lays out a clear path on exactly what you’re trying to do, how you’ll do it, and when it’ll be done.
Set yourself up for success with Rivo
You’ll need to get set up with a platform that supports loyalty programs to get started. While there are plenty of options at your disposal, your search ends here at Rivo. We’ve created solutions that are more cost-effective, easy to use, and results-driven.
You can effortlessly create an on-brand loyalty experience for your customers within hours. Our designer allows you to build out the front-end side of things without any web design experience, just drag and drop different components to build the landing page for your loyalty program.
It integrates seamlessly with your Shopify storefront. This means all the necessary customer data for segmentation gets pulled in automatically. From there you can manage customers and adjust settings, view metrics, and build your reward tiers.
You gain access to more than 150 loyalty features and 100+ pre-built apps and integrations. From integrating loyalty in the checkout process to creating a dedicated customer loyalty portal, the possibilities are endless with Rivo.
Our solution pays for itself and then some with some brands seeing a 52x return on investment and a 4% increase in revenue attributed specifically to Rivo. There’s a reason more than 7,000 brands trust us for their loyalty programs.
We also offer a Shopify referral program if you’re interested in turning your most loyal customers into brand advocates. But, you came here to learn about loyalty status segmentation, so let’s focus on getting this set up first.
Pull in customer data
You’ll love how easily you can pull in customer data for your loyalty status segmentation with Rivo. This gives you a clear understanding of how customers interact with your brand, what they’re buying, how often they’re engaging, and what drives them to return.
But, we see far too many brands getting bogged down by irrelevant data points. Here are the most important data sources to consider when it comes to brand loyalty segmentation:
- Purchase History: Frequency, recency, and monetary value of a customer’s purchases help you identify high-value and repeat customers.
- Engagement Data: How often customers open your emails, interact with your social media, or visit your website.
- Demographic Information: Age, location, and gender can provide more context for effective segmentation.
- Behavioral Data: How customers interact with your brand - whether they browse frequently without buying, leave reviews, or refer friends.
Since some of this data might not come from Shopify, you’ll need to integrate Rivo with the rest of your tech stack to pull it in and ensure you’re segmenting with all the necessary information.
Choose a segmentation method
We’ve already covered the four primary methods for segmenting customers based on loyalty so we won’t go too in-depth on this. Here’s a quick comparison of all your options side-by-side:
- RFM: Ideal for identifying your most valuable customers based on how recently they purchased, how frequently they shop, and how much they spend. Use it to reward high-spending customers or identify those at risk of churning.
- Customer Lifecycle: Categorizes customers based on where they are in their journey with your brand. New customers, active customers, and lapsed customers each require different engagement strategies. Choose this method if you want to nurture first-time buyers or re-engage dormant customers.
- Behavioral: Ideal for brands focused on customer engagement. You can categorize customers based on brand interactions, such as whether they engage with your emails, social media, or loyalty programs.
- Hybrid: Combining multiple segmentation methods presents a more holistic view of your customers. Merging RFM with behavioral insights, for instance, can help you uncover not only who spends the most but also how they interact with your brand.
There isn’t a right or wrong way to segment your customers. It’s all based on the goal (or goals) you laid out from the start. Choosing the right method is essential for delivering the right rewards and messaging to all your unique customer groups, so take your time to think through this step.
Creating enticing rewards for loyalty
Whichever method you choose, you still need to create the specific actions and subsequent rewards for each customer segment. There are so many different directions you can take this:
- Purchase Discounts: Offer high-value customers early access to sales or higher-tier discounts.
- Free Shipping: Encourage frequent shoppers to stay loyal by offering free or expedited shipping as part of a VIP package.
- Personalized Gifts: Reward customers on special occasions like birthdays or anniversaries, giving a personal touch to the loyalty experience.
- Points for Non-Purchase Activities: Encourage engagement beyond just shopping by offering points for reviews, social shares, or referrals.
Rivo presents an array of actions you can offer rewards for, from liking your brand’s Facebook page to following you on Instagram or TikTok, posting a product review, subscribing to your newsletter, referring new customers, placing an order, or even just signing up for the program.
Make sure your marketing speaks to all segments
It’s important to closely align your various marketing channels with your specific customer segments. After all, customers in different segments will respond differently from one another to the same message.
For instance, high-frequency buyers might appreciate offers that reward them for their loyalty, such as early access to new products. First-time buyers, on the other hand, may need a welcome offer or discount to encourage their next purchase. Lapsed customers could be enticed with a personalized “We Miss You” campaign.
Just make sure you’re being consistent in your messaging across all channels, from email to social media to on-site interactions. Cohesiveness is key to creating loyal customers.
Don’t overlook the importance of customer feedback
While you’ll start generating plenty of data to clue you into how your loyalty program is working, why not ask your customers directly?
Surveys and polls are powerful tools for figuring out what types of rewards are the most incentivizing to different customer segments. You can encourage customers to participate by offering rewards points for survey completion!
Continue to improve over time
Even if you feel like you’ve perfected your loyalty status segmentation at first, be prepared to make changes on the fly as you gain more data and customer feedback. Customer behaviors change, market conditions shift, and your loyalty program should evolve with these changes.
Continuously test and optimize your loyalty program to squeeze as much value from it as possible. This could entail anything from refining your rewards structure to trying a different segmentation method, adjusting marketing messaging, or anything in between.
But, you’ve got to start somewhere. The faster you ship your loyalty program the sooner you can start improving retention and boosting your bottom line. So, take the next step with Rivo today!
Parting thoughts on loyalty status segmentation
That concludes our beginner’s guide to brand loyalty segmentation. This is an essential aspect of creating your brand’s loyalty program, as you can tailor your messaging and rewards to the preferences of different customer groups you’ve created.
Whether using RFM, lifecycle, behavioral, or hybrid segmentation, you’re ultimately trying to accomplish the same thing: deliver a more personalized experience for your customers that improves retention and drives higher profitability.
Regardless of the approach you take you can count on Rivo to make the most of your loyalty program. It pulls in all relevant data and allows you to effortlessly create an on-brand experience for your customers. See how our Shopify loyalty program compares to the alternatives below:
