October 04, 2018

Welcome Program vs. Loyalty Program

Loyalty Programs exist for a good reason ... you're trying to turn a loyal buyer into a hyper-loyal buyer.

Let's take one segment and use it as an example. How about customers with 13 life-to-date purchases? How about those who lapsed down to 3 months?

Did you find this segment on the grid? The chance of these customers buying in the next month is 20.1% (in our example). That's a responsive segment, no doubt about it!!

Ok, I did a little research, and it turns out that there are 13,225 customers in this segment. If I can increase response by 10% (and that's a big "if"), then I gain 13,225 * 0.201 * 0.10 = 266 customers. In the next month, these customers have a 24.6% chance of buying again ... they would have had an 18.5% chance of buying again if they didn't buy. So I get 266 buyers at (0.246 - 0.185) = 16 net additional customers the next month.

Let's view the world a bit differently. How about customers with Recency = 1 month and Frequency = 1 order? It turns out that there are 77,086 customers in this segment. If I can increase response by 10% (and that's a big "if"), then I gain 77,086 * 0.061 * 0.10 = 470 customers. In the next month, these customers have an 8.6% chance of buying again ... they would have had a 5.2% chance of buying again if they didn't buy. So I get 470 buyers at (0.086 - 0.052) = 16 net additional customers the next month.

Do you see what just happened there?
  • Targeting Loyal Buyers via a loyalty program gets me fewer orders this month and equal downstream orders the next month.
  • Targeting First-Time Buyers via a welcome program gets me more orders this month and equal downstream orders the next month.
Yes ... your mind should be blown at this very moment!!!! You've been taught stuff that works, but isn't optimal for improving business performance. Get after those first-time buyers and get a Welcome Program in place, now!!

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