January 18, 2007

Where Are Your Customers Going? Part Three Of Multichannel Forensics

If you didn't fall asleep during the first and second installments of my introduction to multichannel forensics, tonight's exploration may be a bit more intriguing.

Recall that we explored how repurchase rates determine how customers flow through your business.

Repurchase rates above sixty percent put you in 'Retention Mode'. Your business will grow from getting customers to purchase more often, and to add items to their purchases.

Repurchase rates between forty and sixty percent put you in 'Hybrid Mode'. These are fun businesses to run, because you can grow via customer acquisition, by getting customers to purchase more often, and by getting customers to add items to their purchases. Of course, customers have to want to purchase more often, or add items to their orders!

Repurchase rates under forty percent land you in 'Acquisition Mode'. These businesses require leaders who have a singular focus on finding new customers.

Yesterday, we talked about an example where catalog customers were migrating online. Today, let's see how catalog, online and retail customers behave.

Migration Probability Table

Catalog Online Retail

New Customers 3,442 9,350 5,937

Repurchase Rates

Corporate 57% 44% 49%
Catalog 29% 4% 3%
Online 35% 33% 5%
Retail 13% 14% 45%

Repurchase Indices

Catalog 51% 9% 6%
Online 61% 75% 10%
Retail 23% 32% 92%

Total Corporate Repurchase Rate = 46%

The repurchase indices are calculated as the repurchase rate divided by the corporate repurchase rate for that channel. Three primary modes, and one secondary mode appear. Let's look at our example.

Isolation Mode: This occurs when all of the repurchase indices are below twenty percent. This means customers are not likely to cross-shop any product, channels or brands. The retail channel is in Isolation Mode. Retail customers have a low catalog index (6%) and a low online index (10%). The retail index (92%) is not used.

Equilibrium Mode: This occurs when at least one repurchase index is above twenty percent, and no repurchase index is above fifty percent. The online channel is in this situation. The catalog index is 9%, so online customers do not cross-shop catalog. However, the retail index is 32%. This means online buyers are likely to cross-shop retail.

Transfer Mode: Executives leading businesses in transfer mode have problems. Transfer Mode occurs when at least one index is above 50%. Look at catalog. The index for retail is 23%, moving catalog to equilibrium mode. However, catalog moves to transfer mode with a 61% index for the online channel. Catalog customers are likely to cross-shop retail. Catalog customers move their loyalty to online.

The catalog executive is sunk. Her customers migrate online at dramatic rates. Her job is to facilitate this transition. She should not expect her business to grow.

The online executive has a mixed blessing. He is fed customers from the catalog channel, this helps grow his business. Notice that his channel is the number one source for new customers. This means he has that as a growth vehicle. However, his customers cross-shop retail.

Because retail operates in isolation (retail customers typically don't cross-shop online or catalog channels in this example), retail is likely to grow and be healthy. It gets customers from catalog, it gets customers from the online channel. Retail does not send customers to other channels.

Your homework assignment: For the products, brands or channels you are interested in, run the table illustrated above, and consider the dynamics surrounding your business. Where do customers come from, where do the migrate to, which products, brands or channels have the best potential for growth?

Once you learn these relationships, how might you alter your marketing strategy to capitalize on the natural flow of customer behavior that your business exhibits?


  1. Anonymous5:13 PM

    Kevin -

    I can't help but wonder if you are too focused on response channel and forgetting about what matters most, offer channel. You seem to assume they are one and the same when they are not.

    Shouldn't the catalog executive be more concerned with effectiveness of advertising spend across channels rather than response channel migration?

    Aren't the successful multi-channel business response channel agnostic (REI, W-S, Resto, etc.) and more focused on share of category rather than channel performance?

    Some of the data I have analyzed shows that catalog provides a great acquisition medium, but subsequent purchases are much more likely to occur at retail or online when mailed a catalog.

    Food for thought.

  2. That's where we are heading!

    Eventually, I'll show a spreadsheet that measures the benefit of acquiring customers via one channel, and then having those customers spend money in other channels. We'll eventually explore how you build an investment simulation that demonstrates the payback you get by investing in various advertising activities.

    Great job! Let me know if you want to contribute to the blog sometime.


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