November 08, 2015

You Talk About Loyalty And Running Simulations - What Are These Simulations, Anyway?

When I talk about customer loyalty, and in particular the need to prioritize new customer acquisition over housefile optimization, I get the "blank stare" look.

You know what this look is like. It's the same look you get when you tell one of your staff members that you are cutting his/her pay by 6% due to a "corporate efficiency initiative".

Moments after the blank stare look, I get the "but conventional wisdom tells us that it is cheaper to retain a loyal customer than it is to find a new customer" comment, a comment that is 100% true and is completely inappropriate all at the same time.

Simply put, if you want to do the right thing for your business, you have to run the math.

Almost none of you run the math.

I visited a company that ran simple math - they calculated short-term return on investment for new customers, and they optimized housefile spend on a break-even basis. But they didn't know what the right "mix" was for their business, long-term. What was the right mix of spend across housefile segments and new customer acquisition, a mix of spent that yields the healthiest business in five years or ten years?

I am confident that you don't know the answer, either. Nobody bothered to teach you. And your vendor partners and/or industry consultants and/or Google don't want you to know that answer (if Google wanted you to know that answer, they'd have a simulation tool in Google Analytics that allowed you to answer the question - they're smart people, you know, they can invent self-driving cars, so they can build a simulation tool for you that tells you if you are spending too much).

So, I'm going to take some time and share with you a simulation tool that I use. Here's a peek:

The tool enables me to identify how much to invest in new customer acquisition. The tool enables me to determine just how much I need to spend on lapsed housefile buyers and best customers, in an effort to have a healthy business not only today, but in several years. The tool allows me to see the impact of merchandise productivity on the business.

In other words, the tool allows me to see things that your vendor partners are unable to see when they are telling you how much to spend.

Let's see where the tool takes us over the next week or two.