### Recessionary Environment: Five Ways To Identify Weak Customer Performance

When a business is not performing to expectations, there are at least five customer-related issues that can identify your problem.

Issue #1: Fewer Loyal Customers Repurchase

Take a peek at this table, illustrating twelve month customer performance (through the end of January) during the month of February.

 Twelve Month Customer File Performance: Month Of February Total Performance Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 133,577 4.9% \$129.20 \$6.33 \$845,649 2007 131,443 5.8% \$128.76 \$7.47 \$981,627 2006 125,490 5.8% \$127.33 \$7.39 \$926,761 2005 111,395 5.7% \$125.92 \$7.18 \$799,531 2004 103,842 5.5% \$123.48 \$6.79 \$705,233 Percent Change Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 1.6% -15.5% 0.3% -15.2% -13.9% 2007 4.7% 0.0% 1.1% 1.1% 5.9% 2006 12.7% 1.8% 1.1% 2.9% 15.9% 2005 7.3% 3.6% 2.0% 5.7% 13.4%

In February 2008, sixteen percent fewer customers chose to repurchase, compared with last year. Notice that the customers who are spending money continue to spend just as much as last year. This is the most common problem in a recessionary environment --- loyal customers simply disappear.

Issue #2: Customers Spend Less

In this situation, you keep your customer base, but your loyal customers simply choose to spend less.

 Twelve Month Customer File Performance: Month Of February Total Performance Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 133,577 5.8% \$109.45 \$6.35 \$847,929 2007 131,443 5.8% \$128.76 \$7.47 \$981,627 2006 125,490 5.8% \$127.33 \$7.39 \$926,761 2005 111,395 5.7% \$125.92 \$7.18 \$799,531 2004 103,842 5.5% \$123.48 \$6.79 \$705,233 Percent Change Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 1.6% 0.0% -15.0% -15.0% -13.6% 2007 4.7% 0.0% 1.1% 1.1% 5.9% 2006 12.7% 1.8% 1.1% 2.9% 15.9% 2005 7.3% 3.6% 2.0% 5.7% 13.4%

Notice that business performance still stinks, but for a different reason. Often, this is a better outcome, because at least your loyal customers are sticking with you, they are just spending less.

Your loyal customers could be spending less for several reasons:
• They are placing fewer orders per loyal customer.
• They are buying fewer units per order.
• They are spending less money per item, buying cheaper items.
You can use the same reporting as illustrated above, simply adding these three metrics to the table.

Issue #3: File Weakness

This is an issue that will rear its head at the end of this recession. Take a peek!

 Twelve Month Customer File Performance: Month Of February Total Performance Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 113,540 5.8% \$129.20 \$7.49 \$850,827 2007 131,443 5.8% \$128.76 \$7.47 \$981,627 2006 125,490 5.8% \$127.33 \$7.39 \$926,761 2005 111,395 5.7% \$125.92 \$7.18 \$799,531 2004 103,842 5.5% \$123.48 \$6.79 \$705,233 Percent Change Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 -13.6% 0.0% 0.3% 0.3% -13.3% 2007 4.7% 0.0% 1.1% 1.1% 5.9% 2006 12.7% 1.8% 1.1% 2.9% 15.9% 2005 7.3% 3.6% 2.0% 5.7% 13.4%

Pay close attention to this table. Notice that repurchase rate, and spend per repurchaser are as good or better than in 2007. The problem is that there are fifteen percent fewer loyal customers than in 2007, resulting in a demand shortfall.

Again, this issue will rear its ugly head at the end of this recession. You'll know you're pulling yourself out when you see good metrics, but weak file counts.

Issue #4: Customer Acquisition Weakness

Catalogers are familiar with this issue. Oftentimes, the business is performing well, but customer acquisition is starved, due to budgetary issues, circulation constraints, or lousy business performance.

Issue #5: A Combination Of Factors

Most often, multiple issues combine to create a business shortfall.

 Twelve Month Customer File Performance: Month Of February Total Performance Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 124,899 5.4% \$122.93 \$6.64 \$829,107 2007 131,443 5.8% \$128.76 \$7.47 \$981,627 2006 125,490 5.8% \$127.33 \$7.39 \$926,761 2005 111,395 5.7% \$125.92 \$7.18 \$799,531 2004 103,842 5.5% \$123.48 \$6.79 \$705,233 Percent Change Year HHs Rebuy % \$ / Reb \$ per HH Total \$ 2008 -5.0% -6.9% -4.5% -11.1% -15.5% 2007 4.7% 0.0% 1.1% 1.1% 5.9% 2006 12.7% 1.8% 1.1% 2.9% 15.9% 2005 7.3% 3.6% 2.0% 5.7% 13.4%

Here, households are down after a week Christmas shopping season. Repurchase rates are down compared with last year, and spend per repurchaser is down compared with last year.

Why Is This Important?

The tactics you use to manage a downturn in business depend on the reasons your customers abandoned your business.

When repurchase rates are down, that's when marketers start using incentives (free shipping, % off). This is also when catalogers send more catalogs, e-mail marketers increase e-mail frequency.

When spend per purchaser is down, marketers use promotions like "gift with purchase", or % off with a hurdle (i.e. 20% off your order of \$100 or more), trying to drive up spend. Marketers also use liquidation/clearance strategies with this audience, trying to drive up spend per customer.

When customer acquisition is failing, you use customer acquisition promotions, or pressure your catalog/online marketing team to attempt better tactics.

When the whole business is failing, geez, that's not much fun.

The same style of customer reporting is used to understand which merchandise divisions are failing. Replicate the reporting for each merchandise division.

Take some time this week to diagnose the problems your business faces from a customer standpoint. If you don't have the resources available, contact me, send me your customer data, and I'll produce the tables for you.