I know, I know, you didn't like yesterday's example. The numbers don't tie out with what your vendor showed you regarding lapsed buyers.
I'm not saying you can't generate profit by focusing on lapsed buyers. It may well be more profitable to target lapsed buyers ... so have at it!!! Don't stop, please.
But you don't solve the long-term problem you have, do you? The customer file remains virtually unchanged. In my simulation of 100,000 new customers, you end up with 800 more customers four years later. That's nothing.
What happens if you increase the probability of a subsequent purchase when recency is equal to one/two/three months? In other words, what happens if you focus all of your energy into the timeframe when the customer is most likely to purchase again?
- My base case had 66,917 inactive customers four years later.
- Targeting lapsed buyers yielded 66,197 inactive customers four years later.
- Targeting 1-3 month recency buyers yielded 65,753 inactive customers four years later.
That's a whole lotta nothin'.
This is why I continually harp on low-cost / no-cost customer acquisition programs. All of the targeting and loyalty and lapsed buyer work you do makes terribly little difference. You might generate profit, sure, and that's a good thing, so keep doing it.
But it doesn't change the trajectory of your business.
Here's how the number of customers change by frequency count.
There are 100,000 customers in the simulation. 8,943 purchase 5+ times in the base simulation. 10,173 purchase 5+ times by targeting the 1-3 month audience and obtaining a 10% lift, assuming that were possible.
But look at what actually happens - just getting a 10% lift among the 1-3 month recency audience results in a 13% increase in 5x+ buyers over four years. So you do everything right ... you get a 13% increase in "loyal" buyers ... but it's just a net increase of 1,230 customers out of 100,000.
Think of all the effort you go through to "develop" a customer ... it's probably 80% of your job if you are reading this. All that effort ... to move 1,230 customers out of 100,000 to "more" loyal status.
Instead of going to all that effort ... all that effort ... why not simply find more new customers? Why not invest your efforts there?
I know, I know. You are going to tell me I'm wrong.
Please run the simulations yourself - run 'em on first time buyers for your business. Ask your analyst to run the simulations for you. Tell me what you learn.
And if you aren't running the simulations ... ask your staff why they aren't running them, ok?