Engagement in Customer Development

Booklet readers (click here) will recognize this image.

In my project work, I like to review (at minimum) how many times the customer performs email clicks, site visits, and pages viewed.  From a Customer Development standpoint, each "engagement touchpoint" adds to increased response for a short period of time. Engaging on social media might increase response for a day. Engaging via a typical website visit might increase response for two weeks. Engaging via email marketing (click through a campaign - only actions matter, opens are not relevant in my models) might increase response for a month.

If you want to be a master at Customer Development, you'll have programs in place that cause customers to interact with you on a period basis. You essentially become a media brand in addition to e-commerce. It's a prerequisite for success in 2021.

Elements of Customer Development You Control

I talk a bit about this in the booklet (click here to purchase).

For an average client, your merchandise assortment is responsible for +/- 60% of what you sell. If advertising is responsible for 80% of your sales, you've done something wrong. You want customers to buy from you simply because of what you sell.

So you control what you sell.

You control what your customer sees when the customer arrives at your website. Showing every customer the same thing every time worked in 1999, it doesn't work in 2021. Well, it works, but it is highly sub-optimal.

You control the notifications you send to your customer. Every night Clubhouse is sending me a couple of notifications every hour. Most of it is garbage, of course (How To Make $10,000 A Month ... Blurring Boundaries of the Forth Industrial Revolution ... How To Launch A Podcast). But that's not the point. The point is that they're working overtime to let me know to interact with the app. The same concept applies to Orvis. I can get notifications from Rakuten about what retailers want me to buy but I can't get notifications directly from retail brands. Tells you something, doesn't it?

You control every aspect of your email marketing program. Most of us don't personalize anything. My team personalized email campaigns at Nordstrom in 2001. Tells you something, doesn't it? Clients who personalize email campaigns get 10% to 50% gains in productivity, and that greatly accelerates Customer Development.

You control all print marketing activity. Old school catalogers still generate half of their sales from print, stunning as that may sound. They know something about Customer Development that most e-commerce brands fail to understand. Of course, that level of knowledge comes at a cost, a cost that paper reps, printers, and postage mavens love.

You control your loyalty program. Points, discounts, promotions, perks. All of this gets communicated in an outbound manner. Use this real estate wisely.

You control your audio and video efforts. Podcasts. YouTube. Instagram. Tik Tok. Every brand great at Customer Development has a credible Audio/Video program. I've worked with several brands who are essentially old-school television stations, sans linear programming. It's a no-brainer, folks.

You control a lot of stuff, but I'm not interested in itemizing everything you control. I'm interested in seeing you do something to facilitate the Customer Development process.

Post-COVID Customer Development

Your annual repurchase rate will determine how your brand will emerge out of COVID.

Many of you possess annual repurchase rates < 25%. Your COVID-bump will end when COVID simply becomes a persistent irritant. There will be a ton of pent-up demand for in-person activity. Some of your new customer acquisition gains may continue, most of 'em won't, and with a low repurchase rate your business will revert to a "new normal" quickly.

Annual repurchase rates between 25% and 40% will experience a different dynamic. Their gains will not be temporary, but they won't be lasting either. Expect a year of "compound interest" paired with contraction. In other words, as new customers revert back to a "new normal", you'll see a contraction in sales. However, all of the customers you acquired pay you back compound interest for a year (+/-), offsetting some (or all) of the sales loss from reduced new customers.

Annual repurchase rates between 40% and 60% will have 2-5 years of compound interest that offsets the sales losses from fewer new buyers. This is a fabulous place to be. My simulations show that these brands will be able to fund all sorts of innovation if they budget their profits wisely.

If you are a rare e-commerce brand with annual repurchase rates beyond 60%, you'll be printing money for years because of COVID (assuming your new customer counts thrived as a consequence).

Lots of Customer Development Options

If you want to learn about Customer Development at a high level, you simply click here and read for free. This document has been downloaded nearly a thousand times, so there's some interest here.

If you want more explanation and details, you click here and buy the book.

If you are looking for your own, personalized Customer Development project, I have one (1) slot that just opened up from March 15 - April 10. Send me an email (kevinh@minethatdata.com) and heck, before that, click now on the project pricing page so you have an idea of what you'll need to provide for me in order to get started.

Customer Development is the story as we emerge from COVID to find ourselves in a different world. Find out what you'll need to do with all the extra customers you have, or find out how to rebound from being closed at times in 2020-2021.

Median Time to Loyalty

Once we know the probability of a purchase at any recency/frequency combination, we can calculate the median time that elapses between a first purchase an loyal status (i.e. 5th purchase): 

Look at the 36-month recency level. After thirty-six months, 36.6% of customers who bought for a first time repurchased. Now read up the column until you see the median ... the period where 18.3% of customers repurchased. That's at the approximate 7 month level.

Perform the same exercise for 2x buyers, 3x buyers, and 4x buyers. You see that the median repurchase interval is about 4.5 months, 4.5 months, and 3.5 months. As the customer moves through the Emergence phase, the customer becomes more likely to repurchase, and tends to repurchase faster.

Add up the median repurchase intervals ... 7.0 + 4.5 + 4.5 + 3.5 = 19.5 months.

It takes about 19.5 months for the customer to achieve loyalty ... if the customer is willing to make the journey. Median Time to Loyalty ... MTL ... is 19.5 months.

Now multiply the percentages at recency = 36 months ... multiply the 1x-2x rebuy rate by 2x-3x by 3x-4x by 4x-5x. What percentage of the customers (based on 36 months of repurchase activity) become loyal (i.e. make it to five purchases)?

The answer is 11%.

You've got a lot of hard work to do, don't you?

• 11% of first-time buyers will become loyal.
• MTL ... Median Time to Loyalty ... is 19.5 months.

Instead of focusing on loyalty programs, why not focus on Welcome/Emergence efforts that reduce MTL and increase the fraction of customers who become loyal?

Big Differences

Yesterday we evaluated "Brand A", with an approximate 30% annual repurchase rate.

Here is "Brand B", with an approximate 45% annual repurchase rate.

These tables are so darn "delicious".

Read across the Recency = 1 rows in both tables. Customer Development in each table (meaning each brand) is essentially the same.

Read across the Recency = 3 rows in both tables. Customer Development in each table (meaning each brand) is different! "Brand A" is losing customers, "Brand B" is doing a better job of keeping customers.

Read across the Recency = 12 rows in both tables. The differences are stark.

Read across the Recency = 24 rows in both tables. The differences are like night and day.

By the way ... both brands are in the same category, so it's not like one brand sells something that customers want less often. Nope. This is what it looks like when one brand is really good at Customer Development. And this leads to an annual rebuy rate that is fundamentally better at "Brand B". That leads to a powerful file that leads to much more profit, so much more profit that "Brand B" can spend more on marketing programs, causing more repurchase activity, making Customer Development look even better.

If you are "Brand A" and you don't have money to do what you want to do, get clever.

• Hire some people who know how to make money on Instagram.
• Hire some people who know how to create entertaining videos.
• Hire a vendor who knows website personalization inside and out.
• Hire a vendor who knows email personalization inside and out.
• Create your daily podcast where you interview your merchants who crave the products they are selling.
• Develop in-house influencers and unleash them on your "community".

The big differences between each brand represent the fundamental difference in marketing strategy between "Brand A" and "Brand B". Marketing matters.

Are you "Brand A", or are you "Brand B"?

Do you know how to evaluate whether you are "Brand A" or "Brand B"? Email me for details and I'll help you figure it out.

Comparing Two Companies

Here's the Average Monthly Grid for Brand "A" (this brand has an approximate 30% annual rebuy rate).

And here is the Average Monthly Grid for Brand "B" (this brand has an approximate 45% annual rebuy rate).

Tell me what you see here?

I'll give you a day to find the key difference between the two brand. Talk to you tomorrow!