November 17, 2009

This Week In Business: The Most Important Time In A Customer Relationship

If you are like me, you've read a lot of content about customer loyalty.

If you are able to analyze actual customer transactions, you quickly learn that the most important time in a customer relationship is the three months following a first purchase. When I run a life table analysis, I'll frequently observe that something like 40% of customers will ever purchase again --- and within the first three months, half of the 40% place their subsequent order.

My simulations strongly suggest that the two levers that really propel a business into the future are customer acquisition and first-time to second-time buyer conversion.

So focus on this important time in a customer relationship --- manage the tactics you love to employ (free shipping, discounts, promotions, all of that stuff), and add a customer service strategy (i.e. actually ask the customer if everything went well during the first order, ask the customer if she needs anything else). Treat this early timeframe with urgency!

7 comments:

  1. The best incremental performance I have ever experienced was a campaign that offered a first time buyer a discount on order #2 (via a welcome email and PI) and included a phone call which was non selling but just checked to make sure everything was ok with the order and that they were happy. The buyer was so surprised to get a call that was not a pressure for another order.....

    The incrementals were large and sustained.

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  2. I totally agree.  The first three months isn't only important because of direct revenue generated through the new customer but also because of their ability to generate buzz and bring in more new customers.

    There is a great story about Rock Bottom Brewery in the book The Anatomy of Buzz Revisited...

    Rock Bottom wanted to measure customer word-of-mouth. The surprising finding of this study was that the heavy loyals didn't bring in a lot of new sales.  One explanation is that these people had already done their buzzing prior to this campaign and had already exhausted their reach.  The light loyals brought more business, but it was nonloyals, for whom Rock Bottom was totally new, who brought in the most.  In fact, each word-of-mouth discussion by a nonloyal yielded incremental category sales of $192.

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  3. Thanks for crunching the numbers to confirm the after the sale "honeymoon" period for first time buyers. This time is critical to establish a relationship to encourage repeat buys and to cement your company in their mind far into the future.

    Rob - LexiConn

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  4. Kevin, great post, and I love using Life Table analysis with my clients. Glad I read "Kevin Hillstrom's Database Marketing".

    Recently, I had a similar situation where I showed that (in this case) 65% of customers who would ever purchase again did so in the first three months. Their response was that they expected this, and that it was due primarily to customers returning and reordering a wrong-sized product.

    While I don't disagree that for some companies with a high product return rate this may be the cause, what was most amazing was that they missed the next logical implication. Namely, that those first time customers desperately needed extra help and attention!

    A first-time customer who makes a return is really saying, "I liked you enough to buy from you, but the purchase wasn't perfect so now I'm wondering if I should ever buy from you again." Even a small gesture from a company at this critical time can make the different between a rabidly loyal customer and a missed opportunity.

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  5. Sure!

    Some companies have databases that allow you to take out the return/reorder dynamic ... and when you do that, you end up with the same answer. No matter what, first itme customers need extra help and attention.

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