September 30, 2014

Catalog vs. E-Commerce Annual Repurchase Rates

There are two issues that persist in the work I perform for clients. One, of course, is Merchandise ... a nearly forgotten concept in modern marketing. 24 of the past 29 Merchandise Forensics projects illustrated a merchandising challenge that is holding back the business.

The other issue, of course, centers around a fundamental misunderstanding about customer purchasing habits.

Look at this graph. Here, we measure the annual repurchase rate of customers as the customer moves from a first-to-second purchase, then a second-to-third purchase, and so forth. The blue bars represent total repurchase rates (mail + phone + e-commerce) for catalog business models. The green bars represent total repurchase rates for e-commerce-only business models.

What do you observe?

You should observe two things that cause you to think carefully about your business.

First, and most obvious, is the fact that catalog business models are far more efficient at converting a first-time buyer to a second purchase. This is a consistent trend that I observe across my client base. Because the customer is instantly pummeled by catalogs after a first purchase, the customer tends to be more responsive, and therefore, repurchases faster. This is one advantage that catalogers have over e-commerce-only business models. E-commerce-only business models struggle to build a relationship with a customer ... e-commerce is transactional, cataloging is relational.

Second, and more important, is the fact that as the customer becomes loyal, the customer has the same repurchase rate, regardless of business model. Here, the catalog industry grossly overstates the importance of a catalog. When customers become loyal, customers buy because customers love the brand, not because customers love the marketing strategy. It is harder for the e-commerce-only business to move a customer along to loyal status, but rest assured, when the customer becomes loyal, the customer buys just as often as at any other business (just ask Amazon or eBay).

This is where catalogers need to step back and throw out thirty years of collective experience. The instinct of the cataloger is to attribute/matchback every single order observed to a catalog. And because the cataloger mails 12-75 times per year, the cataloger will, undoubtedly, attribute/matchback every single order to a catalog. The cataloger must ask why the e-commerce-only business model has the same loyalty as the cataloger, but does not mail any catalogs? How is that possible? And what might happen if the cataloger cut back on catalogs to loyal buyers?

There are two major takeaways for you.

  1. E-commerce-only businesses have a lot to learn from catalogers about how to build customer relationships after a first purchase, because catalogers are simply much smarter at this than are e-commerce-only businesses.
  2. Catalogers have a lot to learn from e-commerce-only businesses about creating customer loyalty. If an e-commerce-only business can achieve loyalty without mailing a single catalog, it suggests catalogers have completely misread what causes loyal customers to purchase (hint = merchandise).