Common Development Attributes on a First Purchase

When you look at first-time buyers, there are certain attributes that lead to "development". Not all first-time buyers are created equally. Few first-time buyers repurchase, and those that do are unlikely to ever become loyal buyers. Instead of having Loyalty Programs, we really should have Development Programs.

If we had Development Programs, we'd focus on the following customers.

Units: Customers who buy multiple items are better Development candidates than are customers who buy a single item in a first order.

Price: Customers who buy 2 items at $30 each are typically better than are customers who buy 2 items at $20 each.

Categories: Customers who buy 2 items from 2 product/merchandise categories are typically better Development candidates than are customers buying 2 items from 1 category.

Channels: There are always 2-3 marketing channels that yield better Development candidates than all of the other marketing channels. The channels are different for everybody.

Time: Acquire a customer in December? Yeah, it's easy and profitable, but those are customers who do not want to be Developed. You'll just sit there wasting money on them the rest of the year. If you really want a customer that can be Developed, focus on acquiring customers in September/October if your business has high Christmas seasonality. Why? You get to double-dip the customer (move the customer to a second purchase) at the very time when the customer is most responsive.

• Yeah, you should take full advantage of this "tidbit" in your Fall 2021 planning.
• Yeah, not that many people choose to take advantage of this "tidbit".

Existing Items: It is common for new buyers to skew toward existing merchandise. This tends to happen for three reasons. First, marketers tend to feature the stuff that works, and existing merchandise works better than riskier new merchandise. Second, Google has a long memory, and Google remembers existing items more than new items that Google hasn't seen ... so in my project work it is common to observe that Google pushes customers who like items you've always sold. Third, new customers tend to not want to take risks, therefore, they buy the stuff that everybody else loves. So look at "what" a customer buys in a first order. It's common for existing items to yield customers more willing to be Developed.

Above Average Priced Items: You have an item that sells for $30. Then you mark the item down to $20. When the item is sold for $30, it is sold "above average price". When the item is sold for $20, it is sold "below average price". It's typically easier to Develop a customer who buys items sold below the average price ... but it is typically easier to generate Profit from a customer who buys items sold above the average price. This is a fun dynamic to analyze, and is a dynamic that few (if anybody) ever analyze.

• Analyze this dynamic.

I'm going to continue my focus on Customer Development next week. If you need help with your Customer Development efforts, contact me (kevinh@minethatdata.com) and click here for project pricing.

Customer Development: What The Customer Purchases Matters

Here I'm looking at first-time buyers who only bought one item. Remember, these are the customers in our example who are least likely to purchase in the future. So we need something ... anything ... to help us identify the customers in this meager cohort who are most likely to want to be developed.

We're looking at rebuy rates (annual) below.

Look at the product category the customers bought from for clues:

• Category 2 = 23%.
• Category 11 = 24%.
• Category 16 = 18%.
• Category 17 = 15%.

You're going to invest more energy developing customers who bought from Categories 2/11. There is a ton of urgency developing customers in Categories 16/17, because they are less likely to repurchase and therefore need to be acted upon in the Welcome stage (first three months after a first order).

Customer Development: Physical Channels

The physical channel where a first order comes in matters. Take a look at this.

We usually look at marketing channels (search, social etc.) ... but we should also combine in the physical channel that drove the order. Here we clearly see how the Desktop buyer is most likely to repurchase in the future.

The data make it really clear ... the marketer is going to have to work much harder to develop the first-time buyer via the app than via desktop.

Have a plan, peeps! Develop your customers.

Customer Development: Many Positive Attributes

Yesterday we talked about the fact that "some" customers want to be developed, while other customers have no interest whatsoever in development.

Take a look at this "combination" of attributes ... items and categories purchased from.

The customer buying one item from one category (obviously) has a 21% chance of buying again in the next year.

The customer buying 6+ items from 4+ categories has a 41% chance of buying again.

The 1/1 combination customer needs to be developed quickly (first three months). Welcome this customer and get busy immediately.

The 6+/4+ combination customer is developed all year long.

Again ... email (strong hint = personalized email) is the secret weapon in your development strategy. Personalize the merchandise you show to the customer, in an effort to develop great habits (multiple items per order, multiple categories per order, higher price points per item).

Customer Development: First Order Attributes

The customer tells us an awful lot while placing a first order. The customer is giving us all sorts of subtle hints about whether the customer wants to have a long-term relationship. Most first-time buyers don't want a long-term relationship. The customer had a want/need at a point-in-time, the need was fulfilled, and the customer leaves (theoretically) happy.

But some customers give away information, useful information!

You are like a Quarterback approaching the line of scrimmage. You are pointing out the middle linebacker. You might have two plays called, a run/pass option, and you have to decide which option you want to select. You might not want your run/pass option, you might audible out of your play into something else that suits the personnel you have on the field.

All of that is you. You are the Marketer, and based on what customers present to you following a first order, you decide to take advantage of the situation. You decide to develop customers.

Here's an example. We have first-time buyers, and we have annual repurchase rates illustrated in the table below.

In this example, the customer might order just one item ... the customer might order six or more items. The customer might buy inexpensive items, or the customer might buy expensive items.

Which customer has the best chance of being developed, based on annual repurchase rates following a first purchase?

A customer buying one item from a low price point has a 17% chance of buying again within a year.

A customer buying six or more items from high price points has a 44% chance of buying again within a year.

Yeah, you want to develop the customer with a 44% chance of buying again. Take some time and be planful here.

The customer with a 17% chance of buying again? That's a customer requiring a very different development strategy. That's a customer that is only responsive in the first three months following a first order, so you invest all of your energy within that window, then you let the customer go.

Know "who" needs to be developed.

Know "when" a potentially unresponsive first time customer needs to be developed.

Know "channels" (strong hint - personalized email) to use to develop customers.

Welcome the customer.

This is what Customer Development is all about.

Next Week

This week I introduced you to the idea of Developing Customers ... Customer Development.

Next week, I'll begin the work of sharing with you how customers evolve and change as time progresses ... and will share how you play a key role in the development of the customer.

You have all of these new customers, blessed to you by a pandemic. It's your job to do something with the customers if you want all of these new customers to become loyal. 

A Department Name

I drove from Ames, IA to Dodgeville, WI on a crisp fall day in November 1990. I had a job interview at Lands' End. I wanted to become their next Statistical Analyst ... something akin to the modern "Data Scientist" job title that is popular today. In time, I'd wear a pocket protector and a bow tie ... our team's way of fighting back against the opinions others had of us.

My position was part of a department called "Customer Planning and Development" ... "CP&D".

Customer Planning and Development.

The mission of our department was to plan (forecast) how customers would behave in the future, and then develop customers (through the only tool we had in 1990 ... the mailing of catalogs).

We had a lot of customer reporting, telling us how good of a job we did at developing customers. First-time buyers, developing buyers, loyal buyers, we had a process for developing customers. Sure, the reporting was antiquated compared to real-time insights obtained in 2021.

But the process was not antiquated.

It was at Lands' End where I learned the perils of over-investing in Emergent Customers and Loyal Customers. It was at Lands' End where I learned of the importance of new customers, of Acquisition. All of those concepts apply today.

What's missing today is the concept of "Developing" a customer.

COVID gave most e-commerce brands a whopper of a blessing ... with +20% comp segment gains on Emergent Customers paired with +50% to +150% gains in New Customer Acquisition.

During the second half of 2021 and first half of 2022, we will need to have a process in place to Develop customers.