October 09, 2016

Developing Customers

When you run a Lifetime Value Simulation (#LTVS) of first-time buyers, you quickly face an uncomfortable reality. Here's the reality you face.
• "Wow, most of these customers just kind of drift off into oblivion."
Yes. Yes they do.

Now, if you work at Starbucks or Wal-Mart or Target or Nordstrom, different rules apply.

But you don't work for those companies. I know that to be true. I look at my visitor analytics and email metrics. Your company sells Widgets, and let me tell you, the rules are different if you sell Widgets.

Here are the results of a recent simulation for an average of businesses with a 37% annual repurchase rate ... the kind of repurchase rate that is AVERAGE across my entire client base. The simulation tracks the progression of first-time buyers for the next four years. I am going to present you with a series of tables of 100,000 simulated newbies, showing you how many end up in different recency/frequency cohorts.

Here's the table for the 0-12 month file, four years after 100,000 customers were newly acquired.

Look at the counts, my friends. Look at the number of customers with 10+ purchases four years after being acquired. The number is virtually zero!

Oh, I know, your are told there is a pot of gold with lapsed buyers. Here's your 13-24 month file.

Again ... there's a hundred thousand customers in this simulation.

#OhBoy.

Through the start of month 49.

Look at the lower right portion of the table ... read across LTD Orders = 1 ... read across to RECENCY = 49 (49 Months) ... what do you see?

You see 2/3rd of the original purchase cohort sitting there ... idle ... inactive.

You aren't going to #engage these customers ... you aren't going to execute a #campaign chocked full of #relevancy and #personalization either ... they're inactive. They bought, their need was met, and they've moved on.

How many life-to-date purchased did these customers place?
1. 66,917 (out of the original 100,000 mind you).
2. 14,756.
3. 5,980
4. 3,404
5. 2,431
6. 1,595
7. 1,249
8. 911
9. 724
10. 541
11. 412
12. 295
13. 253
14. 171
15. 122
16. 79
17. 45
18. 46
19. 20
20. 21
21. 17
22. 6
23. 3
24. 2
In fact, 2,033 of the original 100,000 first time buyer purchased 10+ times in four years.

That's it.

This is why I repeatedly talk about what a waste of time it is to give discounts and promotions to move customers up the loyalty chain. It is Fool's Gold. Given the opportunity to spend money, double the number of new customers - you'll have twice as many loyal buyers in five years.

Tomorrow, an FAQ on this topic.