November 04, 2007

Zappos And Repeat Customers

A quote from Tony Hsieh of Zappos, cited in Catalog Success:

"When we first started, we did what ever other dot-com did: Spent a lot of money on ad campaigns to acquire as many customers as possible. This is a good idea if your goal is to lose as much money as possible. Instead, we started focusing on repeat customer behavior." increased the percentage of customers who buy again within the next 12 months from 20.5 percent in 2001 to 51.3 percent in 2006.

Recall that in the Multichannel Forensics framework, a 51.3 percent annual repurchase rate places Zappos in "Hybrid Mode". This means that Zappos has to balance customer retention and customer acquisition activities, in order to be successful.

It is easy to move the annual repurchase rate from 20 percent to 50 percent in a new business. Once the business model is established, the annual repurchase rate is unlikely to ever move more than +/- 10 percentage points in a year.

Which means that, in order for Zappos to grow, the strategic focus swings back to ... customer acquisition!