March 06, 2016

Big Trouble During The Christmas Season For Customer Acquisition

Allow me to show you summarized results from a lifetime value simulation I ran for a client.
  • Customers Acquired January - October:  12-Month Future Demand = $60. 12-Month Future Profit = $14.
  • Customers Acquired in November:  12-Month Future Demand = $45. 12-Month Future Profit = $8.
  • Customers Acquired in December:  12-Month Future Demand = $35. 12-Month Future Profit = $4.
Show of hands ... how many of you look at future value by month of acquisition? Three of you? That's not good enough!!

Which customer would you prefer to acquire?
  • The customer worth $14 next year?
  • The customer worth $8 next year?
  • The customer worth $4 next year?
When I go back to the late 1990s at Eddie Bauer, I recall a strategy my team used to grow our business.
  1. Acquire customers in September/October.
  2. Get those customers to repurchase in November/December, when the customer is very recent, before the customer lapses.
  3. Be willing to spend $5 additional marketing dollars to acquire the September/October customer, because that customer will pay us back in November/December, and we still end up with more long-term profit than obtained by being lazy and acquiring a November/December customer with a discount/promotion.
How many of you employ that strategy? Show of hands, please.

I know, I know, you are executing real-time optimization, employing the most brilliant search algorithm coupled with a co-op model that overlays external data to create a rich, robust, responsive outcome. Or so the vendors tell you.

Go look at your own in-house data for once. Do you see the same trend that I observed above for a client? If the answer is "yes", does that not change your customer acquisition philosophy?

Customer Acquisition is all about planting seeds. You have to acquire the customer before Christmas, and then turn that customer right around into a second purchase at the time of the year the customer is most likely to repurchase. That's how you grow customer value.

But here's what is most important ... so many of you acquire a significant minority to a majority of new customers in November/December. You tell me that this is the "easiest" time of year to acquire customers. Then, those customers fail to purchase during the following year, so you grumble that you have poor customer loyalty so you plug in a bunch of discounts and promotions and other nonsense to stimulate a customer who only likes to purchase in November/December.

Might it be smarter to spend more to acquire customers in September, given that long-term value may well be so much greater? Is it possible that our industry is simply creating problems by acquiring a customer on December 1 at 30% off plus free shipping ... a customer that is unlikely to purchase for the next ten months?

Please analyze this issue. What do you see happening?