June 08, 2020

Training The Customer

We use price and promotion to train the customer how to behave.

It's hard to analyze a first purchase or a second purchase and learn anything about customer pricing preferences. But by the time the customer purchases for the third time, behaviors become solidified.

For many of us, it takes 6-18 months for a customer to get to a third purchase. During that time the customer will see 300 email marketing messages. The customer will know our promotional cadence. The customer will not believe that 20% off is relevant, because the customer has 60 examples of cases where you lied about 20% off and then offered 40% off. The customer will wait until you buckle.

I've mentioned this test numerous times ... in 1998 at Eddie Bauer we promoted all customers who had not purchased in three months. They all got 20% off ... or more. Then we noticed that purchase response had unnatural "bumps" at three months. So my team executed a test. We did not promote customers for six months, period. What happened?
  1. Customer response dropped dramatically for customers with recency = 1 month / 2 months / 3 months.
  2. Customer response increased significantly for customers with recency > 3 months.
  3. After six months, there was no difference in response or spend. There was, however, a huge increase in profit among customers who were not promoted.
We train the customer to behave the way we want the customer to behave. There are external factors (i.e. lower relative income) that we have to react to, of course, but we play a role in training the customer.

So let's train the customer appropriately, ok?

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