March 08, 2017

Just Get Customers To Be More Loyal!!!

It comes up all the time ... I share the importance of finding new customers, and somebody in the room says something like this:
  • "I just want to play Devil's Advocate for a moment."
First of all, few Professionals play Devil's Advocate for the sole purpose of playing Devil's Advocate. The Professional knows that s/he holds an opposite point of view and doesn't want to be called out if s/he is wrong, so the qualifier is added. Then ...
  • "We just haven't figured out how to get customers to be more loyal. Starbucks figured it out. Facebook figured it out. If we just add more components to our loyalty program and we send more catalogs and we add email campaigns and we give a larger percentage off then our customers will be more loyal and we'll reap the rewards of our strategy and we won't have a loyalty problem. Why can't we just solve the loyalty problem? I mean, I've read that it costs nine times more to acquire a customer than to keep a customer. Why don't we spend five times as much keeping the customer and we'll come out ahead? #amirte?"
No. You won't come out ahead.

Remember our image from yesterday - this is a business that is slowly dying.

This business has an approximate 35% annual repurchase rate - a rate very similar to my average client. Not the 90% that Starbucks has (I'm guessing, don't quote me), is it?

Ok, let's pretend you find some magic elixir (remember, you've been trying to increase loyalty for your entire tenure at the company and haven't moved the needle much) and you increase repurchase rates from 35% to 40%. This is almost impossible to do, by the way, but let's ignore that fact. What does the forecast look like?

For a year, you've fixed the business (though profit might tumble, but let's ignore that for now). Kudos!

Then what happens in year two?

The business begins to contract again, albeit from a higher base.

See, you haven't fixed the core issues with the business ... you just covered up problems with rewards points and %-off deals and free shipping and gifts with purchase and whatever else you can conceive. It's a temporary fix - one that might leave you less profitable.

This is why I harp on the core issue (merchandise). That's what matters most. Without a merchandise assortment that encourages repeat purchase activity monthly, it's nearly impossible to meaningfully move customer loyalty - not impossible - but my goodness it is hard!

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