August 23, 2007

Customers Who Do "X" Spend More

When trying to convince somebody to do something, it is considered a best practice to tell the audience that customers who do "X" spend more than customers who don't do "X".

"Customers who shop multiple channels are worth seven times as much as customers who shop just one channel".

"Customers who research items online and buy in-store spend $72 more during their in-store visit than other customers spend".

"Customers who conduct a live chat session are three times as likely to convert to a purchase as customers who don't conduct a live chat session".

Once the quote has been uttered, the person "selling something" shares their solution, using the quote to justify the reason why the perceived solution is so valuable.

Next time a vendor or blogger or research organization offers you this logic, ask them if they "controlled for all factors". If they haven't controlled for all factors, don't buy the product or logic they are promoting.


Look at these four customers.

Customer Number One: Household income = $200,000 per year. Buys online and in stores. Spends $1,000 per year with the brand.

Customer Number Two: Household income = $70,000 per year. Buys in stores only. Spends $300 per year with the brand.

Customer Number Three: Household income = $50,000 per year. Buys online only. Spends $200 per year with the brand.

Customer Number Four: Household income = $30,000 per year. Buys in stores only. Spends $100 per year with the brand.


Some vendors, bloggers, or research organizations will "slice and dice" this information, producing the following fact: "Customers who buy from multiple channels spend five times as much ($1,000) as customers who buy from a single channel ($200)".

The data indicate, however, that household income is what truly drives spend with the brand. Buying from multiple channels is a byproduct of having a handsome annual income.

The vendor, blogger or research organization, however, uses the byproduct as justification for promoting their "solution".

When you see this logic used, challenge the publisher of the information to provide metrics that show they controlled for other factors. If the vendor, blogger or research organization can't or won't give you this information, be careful.

2 comments:

  1. Anonymous2:59 PM

    Excellent post - this happens all the time. I recall an instance where someone quoted that a " multichannel customer was worth twice as much as a single channel customer."

    They didn't note that by definition, a multichannel customer by definition had to have purchased twice! All the one time buyers were labeled as 'single channel' customers.

    Keep 'em honest Kevin!

    ReplyDelete
  2. Most interesting, I think, is that Executives tend to be swayed most by the multichannel customer argument.

    It is a metric/statement that can be easily understood at that high of a level. And you dig yourself into a deeper hole trying to argue it is a bad metric.

    I always try to get leaders to focus on "which" "multi" customer is most valuable, those who buy multiple products, those who buy from multiple stores, those who buy from multiple channels, etc.

    When you do that, you put the burden of proof upon the Executive. That's typically how I debunk the claim of multichannel customers being so valuable.

    ReplyDelete