October 27, 2015

How Do You Determine If A Customer Is "Loyal"?

This one has always been an easy one for me. Now, I get it, you're not going to agree with me, and that's fine. But when you don't agree with me and you don't have your own definition of what a loyal customer is, well, you've got a problem, don't you?

In other words, you should have a one sentence description of what a loyal buyer is.

Here's my one sentence description of what a loyal buyer is, in retail / e-commerce / cataloging:
  • "A loyal buyer has a 60% or greater chance of purchasing again in the next twelve months."
When I worked at Nordstrom, the marketing team used this definition:
  • "A loyal buyer spent at least $750 in the past twelve months."
Those are two very different definitions, don't you think?
  • My definition is forward-looking.
  • Their definition was backward-looking.
Neither definition is right/wrong.

The forward-looking definition gives me a lot of flexibility. For instance, these two customers may both have a 60% chance of buying again in the next year.
  • 1 Day of Recency, 1 Life-To-Date Purchase.
  • 33 Months of Recency, 22 Life-To-Date Purchases.
Maybe I just purchased a table from Wayfair and am thrilled with my purchase! I am as loyal today as I'll ever be, but the half-life of my purchase is short, and if something magical does not happen in a month, I'll forget my one purchase.

Maybe I purchased from Macy's 22 times, but their omnichannel efforts have not inspired me for nearly three years. I'm still loyal, but I am waiting for Macy's to do something special.

Measure the inflow and outflow of "loyal" buyers in your buyer file. Track it monthly. Understand if you are doing the things that need to be done to generate a loyal buyer file.