August 09, 2007

Praise To Infrequent Customers!!

We've been taught to love "best customers". We worship "customer loyalty" in print and in practice.

Loyal customers are always going to purchase in stores. When infrequent customers decide to make unplanned purchases, retail profit sizzles.

In catalog, the opposite situation is true. Customers could not purchase unless the marketer sent the customer a catalog. The cataloger determined who purchased, and how often the customer purchased.

The internet is a hybrid of retailing and cataloging. Traditional marketing, catalog marketing, paid search, natural search, e-mail, affiliate marketing, shopping comparison marketing, portal marketing and word of mouth all blend into a slurry of online purchase bliss.

Therefore, principals of retail "passers-by" pertain to the online channel.

This profit and loss statement demonstrates what happens if you didn't accept purchases from the 40% of your online purchase file that buys infrequently.

Profit And Loss Statement

40% Loss Of



Infrequent


Actual Purchasers
Net Sales
$65,000,000 $52,000,000
Gross Margin 53.0% $34,450,000 $27,560,000
Less Marketing Expense
$16,250,000 $14,625,000
Less Pick/Pack/Ship 11.0% $7,150,000 $5,720,000
Variable Operating Profit
$11,050,000 $7,215,000
Less Fixed Costs
$7,800,000 $7,800,000
Earnings Before Taxes
$3,250,000 ($585,000)
EBT % Of Net Sales
5.0% -1.1%

This hypothetical example illustrates the power that infrequent customers, customers that don't require a ton of marketing, have on the profitability of the online channel.

All too often, we marketers and business leaders spend our time worshiping our best customers. There's no doubt these customers should be rewarded for their contribution to the profit and loss statement.

But in online retailing and in stores, the infrequent customer plays a key role in determining business success. We don't read anything about catering to the needs of the infrequent customer. Why?

1 comment:

  1. Interesting! Like swing voters in politics. Those do get all the attention though.

    Another great contrarian thought. I learn a lot reading here.

    ReplyDelete