September 18, 2018

Life Table Explains Lack of Customer Loyalty

I frequently run life tables for 1x buyers, 2x buyers, 3x buyers, and 4x buyers. The trend is fascinating.

Look at the twelve-month repurchase rates by purchase frequency:
  • 1x Buyers = 33%.
  • 2x Buyers = 48%.
  • 3x Buyers = 57%.
  • 4x Buyers = 62%.
This is a very typical dynamic.

When a customer has a 60% chance of buying again in the next year, I determine that the customer is "loyal". When a customer has a 60% chance of buying again in the next year, things change. The customer starts generating profit at disproportionate rates ... and that's the key fact we all need to understand ... we want customers who achieve this lofty level of success.

Now think about this differently ... think about how hard it is to get a customer to a fourth purchase?? Let's look at 24 month repurchase rates, and let's do an exercise after looking at the data.

  • 1x Buyers = 41%.
  • 2x Buyers = 59%.
  • 3x Buyers = 66%.
  • 4x Buyers = 70%.
Ok, let's multiply the rates together, just as an exercise.
  • 0.41 * 0.59 * 0.66 * 0.70 = 0.11.
Now, more customers will become loyal because customers will reactivate after 24 months, but for illustrative purposes this is really important. Just 11% of customers will become "loyal" after being acquired, and it might take between 4 and 8 years for loyalty to happen.

In other words, your loyalty efforts are not going to pay off over the next two years, are they?

This is why Welcome Programs and Anniversary Programs are so darn important ... you have to take advantage of every single opportunity you have, at the times when the customer is responsive.

This is why loyalty programs seldom work for businesses that don't have high-purchase-frequency customers. The odds are simply against loyalty. You have to take advantage of high-response periods, generate as much profit as possible, and then move on to the next new customer.

Credible Marketing Management Systems embed these dynamics into their programs.

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