July 13, 2008

Multichannel Forensics A to Z: Acquisition Mode

We begin a series on Multichannel Forensics (study, book) with the letter "A". Our first topic is "Acquisition Mode".

In Acquisition Mode, you retain fewer than 40% of last year's customers. In other words, if 1,000 customers purchased merchandise from your brand in 2007, fewer than 400 will purchase again during 2008.

Too often, we take a "Starbucks" view of the world, one where there is a 40% chance that Starbucks will retain our business today! In those situations, we think about loyalty programs and all the stuff that goes into cross-selling and up-selling the customer --- it's all about getting more from the customer today.

The majority of the brands I study retain fewer than forty percent of last year's customers, in fact, many retain less than thirty percent of last year's customers.

The media, trade journals, and vendor community seldom focus on this business model. A business can make a boatload of money catering to customers who purchase infrequently --- how often do you buy from your local furniture store, after all? Somehow, they stay in business (most of 'em!).

For products, brands or channels locked in Acquisition Mode, it doesn't make sense to try to increase loyalty, as the pundits would have you do. Instead, have a steely-eyed focus on acquiring/reactivating customers at the lowest cost possible.

The Math Behind Best Customers

Those of you involved in Catalog Marketing run optimization tables, right? Right?? Here's an optimization table for really go...