October 10, 2016

An FAQ On Developing Customers

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You read the post yesterday. You think I'm an idiot. You have questions. I have answers.

Question: Kevin, we all know it costs eight times as much to acquire a new customer as it costs to retain an existing customer. Your data has to be wrong. Why is your data wrong?
  • We are looking at the data differently. You cherry-picked your good customers and looked at all the profit they generate and concluded that you shouldn't spend money on new customers. Point of inquiry ... how do you suppose you found those "good customers"? Oh, at one time, you had to "acquire" them, didn't you? In other words, you don't get "good customers" unless you have a robust "customer acquisition" program ... you have to spend the money to acquire the customer to enjoy having a good customer.
Question: Kevin, I looked at my own customer file, and we have a ton of loyal customers. Why does your simulation show so few loyal customers?
  • I am looking at what happens to a cohort of customers. Almost none of the customers become loyal. You acquire customers every month ... and have been for thirty or forty years. So yes, you have loyal customers. But divide the number of loyal customers you have by the number of customers you've ever acquired over forty years, and tears will come out of your eyes.
Question: Kevin, if we just work harder at email marketing and get customers to open more emails, or if we overlay web data on our file, or if we #engage with customers on social media, or if we do a better job with paid search, or if we do a better job with natural/organic search, or if we partner with Pinterest, or if we pay Facebook more, or if we can get more than 7 in 10,000 to click on a retargeting ad, or if Amazon stopped hurting us, then the data you are sharing would look different, right?
  • You have thousands of channels today ... you had dozens of channels in 1995. How has your annual repurchase rate changed in 21 years? It's similar? Or worse? Then what did all of those channels do for you in the first place? The channels made vendors money, that's for sure!! Maybe that's why you hear vendors constantly talking about channels. Think about it for a moment.
Question: Kevin, if we really dig into lapsed buyers, then we can change the dynamic ... we can flip the script, can't we?
  • Tomorrow, I will show you that it's in the first three months after a customer purchases that we can make improvements ... by the time the customer lapses, you aren't able to fundamentally change the long-term trajectory of the simulation ... you can't change it, because the probability of subsequent purchase is simply too low.
Question: Kevin, your data makes it seem like we should almost ignore trying to get customers to become more loyal and instead focus all our efforts on finding new customers. Am I reading you correctly?
  • Yes. Yes you are. 
Question: Follow-up question, Kevin. What you are suggesting goes against all best practices in our industry. You have to be wrong. Wisdom of the crowds, Man!!
  • Did you watch the movie "The Big Short"? A handful of people bet against the housing market. They analyzed the situation, they realized that everybody was wrong, and when the housing market crashed, they got no credit for being right. I have hundreds of client data points, billions of purchase records spanning two decades, and more than a million lines of computer code I've written to study this dynamic. The story is consistent. If you double your customer acquisition counts, you'll eventually double your loyal buyer counts. Now, if you have a million+ lines of code you can forward me that prove the opposite, by all means, I'll publish your findings.
Question: Another follow-up question, Kevin. Customer acquisition is terribly expensive. We'll go broke finding new customers before we double the number of new customers.
  • That's not a question, that's a statement. More important - I've spent the past year asking you to implement low-cost / no-cost customer acquisition programs. I've given you hundreds of examples. How many of the examples have you implemented? I'm more than twenty-eight years into my career ... there are two truths I've learned over time ... first is that low-cost / no-cost customer acquisition programs are critical to business success ... and second is that new merchandise development is critical to business success. Yup, nail those two and you can retire.