Yesterday we started with a grid of 10,000 first-time buyers. We had a grid of repurchase probabilities, remember?
This grid allows us to follow this cohort as it migrates over time. After one month, for instance, we know that 17.3% will purchase again (see the freq = 1 / recency = 1 cell above). This leaves us with a cohort that has begun the process of evolution.
Now we apply probabilities to the two cells in the table / the 17,300 2x buyers have a 24.4% chance of buying again, while the large cohort of 1x recency = 2 buyers has a 9.1% chance of buying again.
The cohort is evolving nicely, don't you think?
After three months, the cohort looks like this:
We have a big glut of mostly inactive customers with recency = 4 months, and then a small group of a few thousand highly active customers.
What does the cohort look like after a year?
We have 57,000 customers who have yet to purchase for a second time ... implying a 43% annual repurchase rate for first-time buyers (which is quite high - most of my analyses show that first-time buyers have a 20% - 35% repurchase rate). A handful of highly loyal buyers have moved along the loyalty process rather quickly.
FYI - here are repurchase rates for 1x customers by recency segment.
- Recency = 01, Rebuy = 17.3%.
- Recency = 02, Rebuy = 9.1%.
- Recency = 03, Rebuy = 5.7%.
- Recency = 04, Rebuy = 4.0%.
- Recency = 05, Rebuy = 3.5%.
- Recency = 06, Rebuy = 2.8%.
- Recency = 07, Rebuy = 2.3%.
- Recency = 08, Rebuy = 2.0%.
- Recency = 09, Rebuy = 1.9%.
- Recency = 10, Rebuy = 1.6%.
- Recency = 11, Rebuy = 1.5%.
- Recency = 12, Rebuy = 2.0%.
- Recency = 13, Rebuy = 1.3%.
- Recency = 14, Rebuy = 1.0%.
- Recency = 15, Rebuy = 0.9%.
- Recency = 16, Rebuy = 0.7%.
Based on what you see there, when is this customer "responsive"?
- Within 3 months of a first purchase.
That's where your efforts need to be focused. If you have a magical marketing strategy that works 10% better than what you are doing today, you are much better off getting 10% of 9.1% on a recency = 2 buyer than getting 10% of 0.7% on a recency = 16 buyer, right?
Tomorrow we'll show you the evolution of a 1x / 16 month buyer. Get ready to be disappointed.
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