April 18, 2021

Out Come The Buzzwords

It's always interesting to hear Customer Development feedback that comes from outside of the Marketing Department.

In one visit, the Information Technology person asked for a list of best practices that could be publicly verified. Sure. Companies love to publicly share their secrets of success. There aren't many articles titled "Here are the eight ways Burger King clobbered the competition, authored by Burger King."

In another visit, the analyst wanted to know if "AI" would be a key component of any solution? That's not a valid question. That's a buzzword embedded in a sentence. The person wouldn't understand what I meant if I said "what do you think of multi-layer perceptrons?" The person just wanted a box checked.

I was asked if solutions were "agile". Enough. Vendors telling you that you need to be quick and adaptive are one thing ... but of what good is it to provide an "agile" solution (whatever that means) that is quick, adaptive, and awful?

Customer Development is a deliberative, contemplative, thoughtful, tactical approach to growing customers from Acquisition to Welcome to Emergence to Loyalty. You don't cheat the process with "AI" or by being "agile". You do the hard work to put the right merchandise in front of the customer.

If a vendor or co-worker starts throwing buzzwords at you when you discuss Customer Development, please redirect the vendor or co-worker.

April 15, 2021

Frictionless

My plan3 (pre-COVID) lands minutes before a severe thunderstorm absolutely pummels the area. I sat the storm out in a Culver's Restaurant (pork tenderloin sandwich and cheese curds), browsing Customer Development notes for the meeting I would have the next day.

This company had a beautiful lobby. Heck, everything was perfect. And for good reason. This company was (and still is) thriving. I was hired to solve a Customer Development problem, a problem that didn't exist. Annual repurchase rates were north of 70%. Customers loved the retail experience so much that online penetration was sub-standard. This company wanted me to help the move customers from a wonderful in-store experience to an online experience.

The Marketing Executive sits me down, and then approaches the grease board.

With effect, he pulls out a black grease board sharpie and writes one word.

"Frictionless".

For effect, he underlines the word a few times.

Frictionless.

There is a belief that if you just remove "friction" you'll convert customers and as a result you'll be great at Customer Development.

"Friction" becomes a math issue in Customer Development. Which customer would you prefer to have?

  1. A customer who visits your site six times in six days before purchasing.
  2. A customer who visits your site three times in six days before purchasing.
Hint - you don't care which customer you have, because both customers purchased.

One of the things we don't measure when creating a "frictionless" experience is incrementality. If you remove a step that makes it easier for the customer to purchase but doesn't cause an increase in the number of purchasers, your "frictionless" initiatives are pointless. You improved the customer experience, but you did nothing in terms of Customer Development.

Given the choice, always pick Customer Development over the Customer Experience. You can do a ton of things that don't add up to any incremental purchases.

April 14, 2021

It Was Cyber Monday

I'm sitting in on the Monday Morning Executive Meeting, on Cyber Monday.

Can I tell you a secret? I detest Cyber Monday.

Cyber Monday is a day where less-qualified professionals cheat at Customer Development. They slap 50% off promotions, watch the sales roll in (regardless whether the sales are profitable or unprofitable), and then battle for the next year as they wonder why so many customers won't purchase unless they're offered 50% off. If Customer Development is the realm of the gifted, Cyber Monday is the realm of the metrics manipulator.

You can tell if a company cares about Customer Development based on how the company behaves on Cyber Monday. As I sat in front of a room full of Executives earning an average of a half-million dollars a year, a meek woman walked into the room and approached the CEO with a slip of paper.

The room became quiet.

The CEO read the slip of paper.

Then the CEO said, "GET GAIL IN HERE".

Poor Gail.

It turns out that a competitor topped the 50% off promo this brand had for Cyber Monday by offering 55% off. The CEO would have none of this nonsense. None of it. 

Poor Gail walks into the room a few seconds later, and was micromanaged into changing email creative within the next ten minutes before launching the promo to the masses. This brand would be at 55% off on Cyber Monday.

Clients that are excellent at Customer Development HAVE A PLAN. They don't act like a child who just ate a Snickers bar only to see another kid with a bag of Kit Kats. They don't deviate in the face of adversity. They persevere. They work hard on their plan. They're not intimidated. Instead, they Lead.

Your Cyber Monday plan tells all of us a lot about how good you are at Customer Development.

April 13, 2021

They Had A Model

Consultants (pre-COVID) get to see a lot of corporate offices. The legendary Don Libey always said that you could judge a company by how well they maintained the bathroom. I'd argue you can judge a company by what the lobby looks like.

On one visit, the lobby looked awful. Worn out. Tired. A sixty-five year old woman named Paulette (not her name) guarded the company secrets from outsiders. Like at many companies, she determined who got in, and who wasn't so lucky. Though the lobby was warn out, it was littered with beautiful catalogs. Current catalogs, older catalogs. Pictures of catalogs from the 1990s on the wall. J. Peterman would have been proud. Clearly the company cared more about catalogs than infrastructure.

The infrastructure issue became obvious once Paulette gave me a laminated photo ID and allowed me to enter the building. It wasn't only the lobby that was run down. The merchandise was run down. Creative was run down. Everything was just laying in ruins. A consultant is hired to solve a specific problem, and the problem I was hired to solve wouldn't make a dent in the core issue. This company had a Customer Development problem, but the problem wasn't the problem the company thought it was.

I interviewed the marketing executive, the CEO, and the lead merchant.

All three told me something interesting. All three told me that they had an analyst, and the analyst created a "model", a model to determine who would receive the catalogs. They were all thrilled that this "model" would solve their business woes.

You can only imagine how wounded these professionals were when I told them that the "model" was irrelevant.

You can only imagine how wounded these professionals were when I sat down with the analyst and realized that the analyst didn't understand the very business he was "modeling". Why should he understand the business? Absolutely nobody was mentoring him, and quite honestly, he was too pigheaded to accept mentorship if offered.

Creative was broken.

Merchandise was broken.

The lobby was broken.

With so much broken, Leadership put their faith in an analyst who built a "model" to select customers for catalog mailings.

Customer Development is an integrated process. You need great merchandise. You need great creative. You need brilliant marketing. You need an operations team that is second to none. You need talent recruitment. You need employee development. You need to pay some people money.

What you don't need are AI or Machine Learning or a "model". Will that help? Of course. But you're looking at a small gain. And you haven't fixed anything.

The best Customer Development companies fix things. They fix run down lobbies. They fix merchandising issues. They fix creative issues. They get you your merchandise in two days. They do all of the little things.

April 12, 2021

They Go In Two Different Directions

I took twelve-month buyers who purchased exactly four times, historically. I built a model to predict how likely the customers were to purchase again next year. Twelve months later, I applied the same model to customers, based on their current status. Finally, I divided the "next year" prediction by the prediction "one year ago", giving me a performance index.

Below is a histogram of the performance index. Tell me what you observe.


There are two peaks, aren't there?

There is a peak at about 0.60 ... meaning that one group of customers saw their chances of purchasing again slump by about 40%. These customers (obviously) did not purchase in the past year.

There is another peak, at about 1.20 ... meaning that another group of customers saw their chances of purchasing again increase by about 20%. These customers (obviously) purchased again the past year. Most of those customers became more valuable.

The average index for 4x buyers is (in this case) 0.89, meaning that on average this cohort of buyers saw their future chances of buying again slump by about 11%. The cohort (on average) becomes less valuable, with some customers becoming more valuable.

What was the index by 12 month buyer x frequency segment?

  • 1x Buyers = 0.75.
  • 2x Buyers = 0.83.
  • 3x Buyers = 0.86.
  • 4x Buyers = 0.89.
  • 5x Buyers = 0.90.
  • 6x-10x Buyers = 0.92.
  • 11x-15x Buyers = 0.94.
  • 16x-25x Buyers = 0.97.
  • 26x+ Buyers = 1.00.
On average, nearly ALL frequency cohorts saw decreased odds of buying again after a year passed.

If you are wondering, yes, this is happening at your business as well.

If you want more loyal buyers, you'll likely have to acquire more new buyers, because the degradation process is real and it is spectacular.



April 11, 2021

A Special Offer for Blog Subscribers!!

Who says I never do anything for you, the loyal Blog Subscriber?

If you are a Blog Subscriber, I will run a Customer Development Master Sheet for you at the insanely low cost of just $6,900 (click here for an example). You'll get to see how your Customer Development efforts stack up against a baseline of brands.

You obviously won't get the full set of benefits you get in a fully developed Customer Development project (click here), but that's life. You get something you will get from NOBODY ELSE. You'll learn if you have problems. You'll learn where you have problems.

You have one (1) week to take me up on this offer. In many cases, you have a boatload of customers from COVID that you may not be managing at peak effectiveness. Let's learn what your opportunity is, ok??

One week. Contact me (kevinh@minethatdata.com). Click here for the file format (called File #1) you'll need to send me.

April 08, 2021

The Master Sheet: Customer Value

Here's the Master Sheet we've evaluated for more than a week.


Today we'll look at the portion of the table on the far right, colored in yellow. Here I look at annual repurchase rates based on the life-stage the customer is at. Say a customer has a recency = 6 months and frequency = 2. This customer has a 32% chance of buying again in the next year.

When a customer becomes loyal, I like to look at "how long" the customer stays loyal. For this brand, the customer achieves a 60% chance of repurchasing again after a 5th purchase. Read down the 5x to 6x column on the far right side of the table. How many months does the customer stay above the 60% "loyalty" threshold?

Two (2) months. 

That's it.

This company has some work to do if it wants to maintain a loyal customer base, doesn't it?

This is how we use the Master Table. The Master Table tells us all of the Customer Development secrets needed to determine where the marketer should invest time, energy, and money.

In this case, the marketer has several opportunities.
  1. A Welcome Program.
  2. All Buyers Purchase for a Second Time.
  3. Recently Minted "Loyal" Buyers.
Now go get busy creating your own Master Sheet. And if you don't have the resources to create your own table, contact me (kevinh@minethatdata.com) for project pricing (click here).



April 07, 2021

The Master Sheet: Cumulative Repurchase Rates by Month

Back to the Master Sheet.


Today we're looking at the fourth section ... the lavender section of the table. For customers buying for the 1st / 2nd / 3rd / 4th / 5th times, I measure the cumulative repurchase rate by months since the purchase in that column/segment.

Remember, this brand does a good job of Developing lapsed first-time buyers. We see this fact in this portion of the table. 13% of first-time buyers repurchase within three months, 27% repurchase within a year, 40% repurchase within two years, 49% repurchase within three years, and 55% repurchase within four years. I don't see this dynamic happen often. In e-commerce in particular, once the customer gets beyond 13 months the customer generally disappears. That's not what we observe here. Because this brand does a fantastic job of Developing lapsed buyers, repurchase rates for first-time buyers extend beyond the 0-12 month timeframe.

This brand does not do a great job of Developing customers who have purchased for a second time, and as a result rebuy rates for 2x buyers are at 40% after twelve months. It takes five purchases before the customer becomes loyal (64% rebuy rate after twelve months for 5x buyers).

This brand needs to address the Welcome Period, and this brand needs to address Development of 2x buyers. There's a lot of good happening here, but there is plenty of room for improvement as well.





April 06, 2021

The Master Sheet: What Is This Company Doing Well?

Let's start with the Master Sheet.


What is this company doing well? Let's look at the areas in the middle heatmap of the table that are colored green? There's an obvious column that is colored green. First-time buyers beyond about 9-10 months of recency index high. In other words, this company does an outstanding job of Developing lapsed first-time buyers.

To be honest, this is a common outcome for brands that still employ catalog marketing. Catalogs are (expensive and potentially unprofitable) fabulous tools for increasing Customer Development, especially among lapsed buyers.

Keep looking at 1x Rebuy Index column. What do you see in months 1/2/3 for first-time buyers? You see an indexed value < 1.000. This company is about 20% worse at Welcome Programs than my baseline suggests this company should be. That's a bad outcome. This company needs a better Welcome Program, or simply needs a Welcome Program, period.

Look at the column next to the 1x Rebuy column, labeled "Change 2x vs 1x". This column is the indexed outcome of comparing how response increases as a customer purchases for a second time. What color are the cells? They're largely orange, meaning that this brand is about 10% to 15% less effective at increasing response among second-time buyers than my baseline. This brand does not do a good job of Developing customers who purchased for a second time.

What colors do you see for customers who purchased for a 3rd/4th/5th time? Most of those cells are yellow, meaning that this company does an average job of Developing customers through Emergence and into Loyalty.

What grade would I give if I had to evaluate this brand? Probably a C+. The brand does a lousy job of managing the Welcome period, it does an exceptional job of Developing Lapsed first-time buyers, it does a below-average job of developing second-time buyers, and it does an average job of pushing customers through Emergence into Loyalty.

What would you do to fix this outcome?

Think about that question for the next day, ok?



April 05, 2021

The Master Sheet: Comparing Your Customer Development to a Baseline

Ok, it is time for the grand reveal!


Yesterday we talked about Customer Development Indices. We compare how much more responsive 2x (two purchase) customers are than 1x, or 3x vs 2x, or 4x vs. 3x, or 5x vs. 4x.

There are five columns in the middle of the table, forming a heat map. Let's review each column.

  • 1x Rebuy:  Here I index your first-time buyer repurchase rate by recency against the baseline I've developed. A value below 1.000 means your Development tactics result in below-average performance. A value above 1.000 means your Development tactics are above-average.
  • Change 2x vs. 1x:  Here I compare how well your response increases as a customer buys for the second time vs. the baseline I've developed.
  • Change 3x vs. 2x:  Same metric, but for third-time buyers.
  • Change 4x vs. 3x:  Same metric, but for fourth-time buyers.
In the heatmap in the middle of the Master Table, you see three general colors. Green is above-average ... you are doing well. Yellow means you are performing at about average. Orange/Red means you are performing below-average.

Tomorrow we'll talk about what we see in the middle of the table. For today, try to interpret the results and consider what the implications of the findings are.






April 04, 2021

The Master Sheet: Indexed Performance by Frequency Segment

When I review how well you perform at your Customer Development duties, I typically look at three key attributes.

  1. Comparison of first-time buyer response in months 1/2/3 vs. other months (i.e. the Welcome Period).
  2. Annual repurchase rates for 1x / 2x / 3x / 4x / 5x buyers, to determine "when" a customer becomes loyal.
  3. Gains in response after a 2nd purchase, after a 3rd purchase, after a 4th purchase, and after a 5th purchase. These gains are called "Indexed Performance".
Look at the top row of the farthest left columns in the Master Table.


At recency = 1 month, first-time buyers have a 7.4% chance of buying again.

At recency = 1 month, second-time buyers have a 10.0% chance of buying again.

Indexed Performance for 2x buyers vs. 1x buyers is 10.0/7.4 = 1.351.

For every recency level I calculate Indexed Performance for 2x-vs-1x buyers, for 3x-vs-2x buyers, for 4x-vs-3x buyers, and for 5x-vs-4x buyers. The salmon-colored cells in the table illustrate Indexed Performance.

Why do I care about Indexed Performance?

Simple. I get to compare your Indexed Performance against a baseline I've developed across many brands. I get to see how well you Develop Customers against the baseline. If you have weaknesses, I get to see your weaknesses. If you have strengths, I get to illustrate to you what your strengths are.

Your homework assignment is to look up and down the salmon-colored section of the table. Tomorrow we'll address the middle portion of the table ... the meaty section that determines if you do a good job at Customer Development or not!




March 31, 2021

The Master Sheet: Incremental Monthly Rebuy Rates

The Master Sheet tells us the story of how well your brand executes Customer Development strategies.


There are two "heatmaps" embedded in the Master Sheet. Let's look at the series of columns on the far left side of the Master Sheet.

This series of columns represents the probability of a customer buying again next month, given current Recency/Frequency status. Look at the top row. The cells are green, meaning that customers are responsive in the month following a purchase. One might say "duh", and that wouldn't be an inappropriate response. However, we need to have a baseline for comparing customer performance. If recency = 1 and frequency = 1 (brand new buyer), the customer has a 7.4% chance of buying next month. Now read down a row ... if the customer doesn't purchase, the customer falls to recency = 2 and frequency = 1, and the repurchase rate (a yellow cell) drops to 3.8%. If the customer fails to purchase again, the customer falls to recency = 3 and frequency = 1. Here, the customer has a 2.5% chance of buying again next month. Already the customer is lapsing. We repeatedly learn about the importance of a credible Welcome program, don't we?

Read across the recency = 1 row. As the customer upgrades via additional purchases, the customer becomes more responsive. At frequency = 1 the customer has a 7.4% chance of buying next month. At frequency = 2, the customer has a 10.0% chance of buying again next month. At frequency = 3, the customer has a 11.8% chance of buying again next month. At frequency = 4, the customer has a 13.6% chance of buying again next month. At frequency = 5, the customer has a 15.1% chance of buying again next month. You continue to "develop" the customer after each purchase, causing the customer to become more responsive (and ultimately, more "loyal").

Look at the strange "green" cells at recency = 12 months. Incremental monthly response (for this brand) increases at recency = 12 months, recency = 24 months, and recency = 36 months. Why does this happen? This is a classic "seasonality" dynamic that is so important in Customer Development. Customers who bought a product last September, for instance, become more responsive the following September if the customer has yet to purchase by then. Every credible Customer Development program capitalizes on seasonality.

There are additional trends worth pointing out.

Look at how quick the colors change from green to red (high response to low response) in the frequency = 1 column. The customer rapidly degrades, fades, lapses, becomes inactive. This is a common outcome in a Customer Development project. Your first-time buyers generally "don't want" to purchase again, and if they do purchase again, they do it quickly before spreading out and buying for a second time at lengthy time intervals.



March 30, 2021

The Master Sheet

The biggest prize in any Customer Development Project is the presentation of what I call the "Master Sheet".


Yeah, there's a ton of numbers in the Master Sheet. All of those numbers tell the story of how well you Develop Customers.

The Master Sheet is divided into five unique tables, five stories, by months since last purchase. We have incremental repurchase rates by recency, we have indices that tell us how much response increases as we move from a 1st to a 2nd to a 3rd to a 4th to a 5th to a 6th purchase. The indices are important, because I compare your indices against a family of brands, so that you can see how you "stack up" against the competition ... that's the middle of the table. In the middle of the table, I compare your 1x to 2x rebuy rates against the competition, and I compare the rate of growth in response for 2x / 3x / 4x / 5x buyers against the competition. Notice the colors in the middle of the Master Sheet. Greens are above-average (vs. competition), yellows are average, red/orange are below-average. This tells you how you stack up. Finally, I list cumulative repurchase rates after a purchase by months since that purchase, and then the yellow columns at the end of the table show us twelve-month rebuy rates at "recency = x" months.

Combine all of this data in the "Master Sheet", and we have the story of your Customer Development efforts!

More on the topic tomorrow. When you need to hire me to understand how your Customer Development efforts stack up, email me here (kevinh@minethatdata.com) and click here for project pricing.




March 29, 2021

Climbing The Ladder

Take a look at customers who just purchased (read across the Recency = 1 row).


Look at how hard the marketer has to work to encourage a customer to become loyal. When the customer purchases for the first time, the customer has (in this example) a 26.8% chance of buying again in the next year. I mean, that customer is not likely to buy again.

Eventually the customer migrates across the spectrum, and at a fifth purchase the customer has a 63.3% chance of buying again. The customer is loyal.

As the customer climbs the ladder toward loyalty, annual repurchase rates increase consistently ... 26.8% after a first purchase ... 40.0% after a second purchase ... 49.3% after a third purchase ... 57.1% after a fourth purchase ... 63.3% after a fifth purchase ... 68.7% after a sixth purchase ... 73.1% after a seventh purchase.

Where is the largest "delta" after a purchase? After the first purchase ... going from 26.8% to 40.0%. With each additional purchase, the delta gets smaller. You get the most "value" moving a customer from a first purchase to a second purchase.

Run the table for your brand. Tell me what you observe (kevinh@minethatdata.com).

March 28, 2021

Channels Play a Big Role in Customer Development

Each marketing channel plays a role in the development of customers. Take a look at this example.


This is such a common outcome. The vast majority of marketing channels speak to a customer in the Acquisition/Welcome phase. By the time the customer becomes Loyal, the customer is an email shopper.

The email issue is interesting, because so many marketers treat email as the discount / throwaway channel. Got too much of a specific item? Throw the items away via 60% off in email marketing. That's not how you Develop a Customer ... rather, that's not how you should develop a customer!

Use your marketing channels wisely! The customer will develop, and you don't want to hinder development by misusing a channel.




March 25, 2021

Meanwhile in China ...

Read through this thread on Twitter (click here). I promise you will learn something about E-Commerce and Customer Development. The analysis shows just how far behind so many of us have fallen.

March 24, 2021

The Roaring 20s

If you saw my upcoming project load, you'd become convinced that we "might" be headed toward very interesting times.

Following World War One and the Spanish Flu, we experienced the Roaring 20s ... 1920s that is. A period of significant economic expansion.

With one COVID shot in the book and another scheduled for ten days from now, I'm closing in on my "golden ticket" ... a re-entry into society. By mid-late summer, those who want to be vaccinated will be vaccinated. Those individuals will want analog-world experiences, after being locked-into digital experiences for sixteen months.

I don't have data to prove it, but my project load is increasing, and I suspect households are looking forward to attending a baseball game, a play, Saturday night at a bar, or dinner at a bistro or dive.

Maybe we won't have the Roaring 20s ... 2020s ... but something positive is coming.

March 23, 2021

Life Cycle Purchases

Take a look at this image.


Each of my major project types serves a portion of the audience. My "Elite" program serves my most loyal customers. My Business Evaluation project primarily serves first-time customers looking to understand why their business is not meeting expectations. Customer Development projects are newer, and were initially pitched to my most loyal customers. Since then, the project has been a great way to find new customers.

Traditional Catalog Contact Strategy projects speak to catalog-centric brands who do not have a long-time relationship with me.

Finally, ad-hoc projects speak to my most loyal customer base. These clients have interest in other work that isn't easily categorized. Because of the long-term relationship we have, we figure out a way to get work done.

Acquisition clients focus on classically defined projects.

Welcome / Emergence customers begin the shift to my Elite Program and Ad-Hoc work.

Loyal customers love the Elite Program and Ad-Hoc work.

Now, if this relationship exists for my business, imagine what you'll learn in a Customer Development project if you look at the items that your customers purchase, based on the life-cycle of the customer?

March 22, 2021

Your Plan

So I'm in on a conversation and the "brand" is pummeling the vendor. Sometimes vendors deserve to be pummeled, but let's be honest, it is common for "brand employees" to beat up vendors because they've been beat up by in-house co-workers and somebody needs to absorb the punishment.

Anyway, I'm in on a conversation and the marketer at the brand is beating up the vendor about Customer Development. The marketer expects the vendor to toss in a bunch of free Customer Development activities. And you can tell that the vendor is uncomfortable ... uncomfortable to have a bunch of hard work handed to them, work that will not be monetized, work that will cause them to be beaten up.

We all have a framework for developing our customers.


Each cell in the image above requires a strategy. Not your normal "we'll be great at paid search", that's not a strategy within a Customer Development framework ... that's a paid tactic.

What are you going to do at a customer-level that is "different" and "unique" for the customers in Welcome / Emergence / Loyalty phases, by recency segment?


P.S.: The most common response I get to that final question is "I don't know". That's ok. It's much worse to know what to do and then not do anything.




March 21, 2021

Retargeting and Customer Development

We've all been there. We buy from Walleye Direct, and six hours later we see this.


Twitter is a place where reason and digital best practices crack skulls. One person tweeted that he bought a washer/dryer, then spent weeks seeing washer/dryer ads though he just bought a washer/dryer. Same thing happened to me. I bought a Dell laptop last June and for six months I was continually "retargeted" by Dell to buy a laptop.

Then the digital gurus pile on in the opposite direction. "It's cheap", "It's branding", "the ROI is too good (never mind lousy attribution models designed to benefit retargeters", "it's practically free". They seldom say, "yeah, the strategies we promote are stupid, lazy, redundant."

Here's what we know.
  • When a customer buys for the first time, you have between 30 and 90 days to encourage a second purchase before the customer begins to lapse.
  • Customers who buy from multiple merchandise categories are more valuable than are customers buying from one merchandise category.
So retargeting has a place. But do something valuable with it. DEVELOP a customer. Cross-shop the customer into adjacent merchandise categories. Tell a brief story. Do anything ... anything ... but sell the darn customer the exact same item the customer just purchased, especially when the customer only buys that item once every "x" years.

Develop your Customers.




March 18, 2021

Customer Development and Velocity

Velocity becomes an important concept in the Emergence stage of Customer Development.


What is "Velocity"?

  • (Life To Date Orders) / (Months On File / 100).
Example #1:  Customer placed three orders and has been on the file for 20 months. Velocity = 3 / (20/100) = 15.0.

Example #2:  Customer placed three orders and has been on the file for 27 months. Velocity = 3 / (27/100) = 11.1.

In the first example, the customer orders 15 times per every 100 months.

In the second example, the customer orders 11.1 times per every 100 months.

The customer in the first example has a faster "Velocity" ... the customer orders more often.

If you are targeting customers as they go through the Emergence stage, go after customers with the fastest "Velocity". In my regression models customers with the fastest "Velocity" are most likely to become Loyal.

Once the customer becomes Loyal, Velocity becomes much, much less important.

If you want to evaluate cohorts of acquired customers, be sure to measure their average Velocity over time. You'll likely see that some cohorts have poor Velocity, signaling key issues with the customers you acquired.



March 17, 2021

The Welcome Model

Here's the outcome of a Welcome Model for a recent project:

  • Most Important Variable = Merchandise Category Purchased From.
  • Second Most Important Variable = Number of Merchandise Categories Purchased From.
  • Third Most Important Variable = Number of Items in a First Order.
  • Other Variables = Channel Purchased From, Price per Item Purchased.
It's all about merchandise, in this case. Repurchase rates varied by 50% (i.e. a 20% rebuy rate could be 10% or could be 30% based on "what" category the customer bought from). That's a big deal! Your website should recognize who visits, and based on who visits, should offer products to first-time buyers that lead to higher rebuy rates ... and consequently ... better Customer Development.

What if the customer wants to buy something that leads to low long-term value? Well, if you can generate profit doing that, go ahead and pocket the profit. But the customer isn't coming back, so strongly push for a second purchase during the Welcome timeframe and then let the customer go.

When you think about Developing Customers instead of Converting Customers, you take a very different approach to growing your business, don't you?

March 16, 2021

A Common Customer Development Trend

Since about June 2020, clients have been asking me a simple question:

  • "Will all of these new COVID-fueled customers convert at the same rate that comparable pre-COVID customers converted?"
When I model future buying activity among new buyers, the number of items purchased in a first order and the number of merchandise categories purchased from play a key role in determining future value.


Would you rather acquire a customer buying 3 items from 3 categories (30.2% rebuy rate) or a customer buying 1 items from 1 category (20.8% rebuy rate)?

This is where the fusion of marketing brilliance and merchandising talent intersect. It is so darn important to encourage a customer to buy "multiples" in a first order.

In my Customer Development projects, I create a Welcome Model designed to identify who is most likely to purchase in the next year. The models adore "multiples", which means that a "one-and-done" customer might be profitably acquired, but you haven't built a framework for Developing Customers.

If you want a Loyal customer in two years, get your prospect(s) to buy "multiples" on a first order.


March 15, 2021

Types of Customer Development

There are many ways to navigate Customer Development. All tactics are serviceable, all have a place.

Influencer-Based Customer Development is popular, of course. Find an influencer, pay the person with products or cash or whatever, collect the orders. It is not a method to build anything long-term, and it is a method that allows you to navigate the Acquisition phase effectively.

Merchandise-Based Customer Development is a common strategy, one that works wonders. When Kohl's adds Sephora to their stores, they're employing a Merchandise-Based Customer Development strategy. In theory, the strategy works well across all stages.

Addressable Customer Development is most effective, of course. Email, Notifications, Print, it's a series of tactics designed to speak to an individual.

E-Commerce Customer Development is the process of merchandising the online pages the customer browses. Creative, personalization, merchandise assortment, they all fit together.

Mass Advertising Customer Development is like when Stitch Fix advertises on television. Costs are likely high, but it is a key way for a brand with sufficient long-term value to find new customers.

Digital Customer Development focuses on paid search, SEO, retargeting, general social media, etc.  The tactics are highly effective in the Acquisition stage.

Vendor-Based Customer Development is littered across everything you read. OMNICHANNEL! The strategies work ... when applied properly. When applied in a manner that benefits the vendor, well, just take a look at the ruined retail landscape for examples of the damage created by Vendor-Based Customer Development. The best marketers apply Vendor-Based strategies appropriately. Average marketers cut-and-paste, leaving their brands harmed.

There are many other examples ... no need to go into more detail here. Your job is to leverage each tactic appropriately, within each of the five stages of Customer Development.

March 14, 2021

Seasonality, Part 2

Here's the image we ended last week with.


I asked you to study what happened 11/12 months after a first purchase. Remember, "Incremental Rebuy Rates" represent the probability of a customer purchasing "x" months after a prior purchase, given that the customer has yet to buy again.

Read down the "1x to 2x" column under "Incremental Rebuy Rates". The customer is somewhat responsive right after a first purchase. After three months, the customer quickly becomes unresponsive. Once again, we are shown the clear value of a Welcome Program.

But at month 10 something changes. The customer starts to become "more" responsive, in direct opposition to all of the rules of classic "RFM" modeling.

Why would a customer become more likely to buy approximately one year after a purchase?

It's seasonality!!

When I worked at Lands' End in the early 1990s we had a thriving swimsuit business. Every year in March/April we'd have an increase in response, driven by seasonal buying of our merchandise offering. I used to create maps for our merchants showing response rate increases for swim in Florida in January, South Carolina in February, the Upper Midwest in March (spring break), the mid-south in April, and then again in the Upper Midwest and New England in May/June.

Your Customer Development strategy needs to incorporate your merchandise offering. When you offer products that are bought at specific times of the year, you change your marketing strategy accordingly.





March 11, 2021

Seasonality

Let's take a look at an average of monthly rebuy rates, cumm'd into annual rebuy rates. In particular, take a look at what happens in months 11/12.


What do you think is happening there?

We'll pick up the discussion on Monday. Think about why Customer Development suddenly surges in months 11/12?




March 10, 2021

Customer Development: The McRib Sandwich and the Shamrock Shake

Customer Development in fast food is different than it is at Orvis. Your job is to get the customer to buy from you several times a month, not five times over two years.

That's where merchandise plays a key role.


The McRib isn't available at all store or at all times. It's a surprise.

Or on a seasonal basis, you have the Shamrock Shake (and in the old-school days, you could get a mix of shamrock & chocolate, and that was a satisfying blend).


All of you have products that have either a seasonal component, or could be leveraged in a way where you don't sell the product at all times in all channels. Why not create some scarcity, and use scarcity as a Customer Development strategy?








March 09, 2021

Customer Development: Oil Changes

Certain industries do an outstanding job of Developing Customers.

Maybe you buy tires at Les Schwab or Discount Tires or Big O Tires if you live out here in the West. How often do you need tires? Certainly not every year.

So what does a Tire Brand do to foster Customer Development?

Yup - you need an oil change. To keep you loyal and active between infrequent tire purchases, your local tire brand has all sorts of merchandising strategies designed to keep you active, moving you along the Customer Development spectrum from Welcome to Loyalty.

Alignments come to mind as well.

Your company has similar tactics available to you. Just use them! There's no need to destroy gross margins by offering 40% off everything in a desperate effort to improve response/conversion. Craft your own Customer Development strategy using the merchandise you already offer. Get busy!!






March 08, 2021

For E-Commerce Brands: Customer Development

Yesterday I shared with you the most popular catalog-brand project request.

Among e-commerce brands, it's all about Customer Development (click here).

The catalog brand looks to optimize how much the catalog brand spends trying to convert customers. The e-commerce brand lacks the Customer Development abilities of print, consequently, the e-commerce brand needs alternatives to develop customers. That's what I am working on with e-commerce brands, trying to convert this huge glut of COVID-fueled buyers (or trying to minimize the decrease in buyers caused by COVID).

March 07, 2021

For Catalog Brands Only: A Primer on Contact Stream Optimization

For the third of the audience that are catalog brands, here is a primer on how I currently manage Contact Stream Optimization (click here). Email me (kevinh@minethatdata.com) when you need assistance.

Among my catalog client base, this is currently the most popular project request. Many catalogers are trying hard to save money by not over-mailing all of the digital customers acquired during the pandemic. You should count yourself in that camp as well.

March 04, 2021

Engagement in Customer Development

Booklet readers (click here) will recognize this image.


In my project work, I like to review (at minimum) how many times the customer performs email clicks, site visits, and pages viewed.  From a Customer Development standpoint, each "engagement touchpoint" adds to increased response for a short period of time. Engaging on social media might increase response for a day. Engaging via a typical website visit might increase response for two weeks. Engaging via email marketing (click through a campaign - only actions matter, opens are not relevant in my models) might increase response for a month.

If you want to be a master at Customer Development, you'll have programs in place that cause customers to interact with you on a period basis. You essentially become a media brand in addition to e-commerce. It's a prerequisite for success in 2021.



March 03, 2021

Elements of Customer Development You Control

I talk a bit about this in the booklet (click here to purchase).

For an average client, your merchandise assortment is responsible for +/- 60% of what you sell. If advertising is responsible for 80% of your sales, you've done something wrong. You want customers to buy from you simply because of what you sell.

So you control what you sell.

You control what your customer sees when the customer arrives at your website. Showing every customer the same thing every time worked in 1999, it doesn't work in 2021. Well, it works, but it is highly sub-optimal.

You control the notifications you send to your customer. Every night Clubhouse is sending me a couple of notifications every hour. Most of it is garbage, of course (How To Make $10,000 A Month ... Blurring Boundaries of the Forth Industrial Revolution ... How To Launch A Podcast). But that's not the point. The point is that they're working overtime to let me know to interact with the app. The same concept applies to Orvis. I can get notifications from Rakuten about what retailers want me to buy but I can't get notifications directly from retail brands. Tells you something, doesn't it?

You control every aspect of your email marketing program. Most of us don't personalize anything. My team personalized email campaigns at Nordstrom in 2001. Tells you something, doesn't it? Clients who personalize email campaigns get 10% to 50% gains in productivity, and that greatly accelerates Customer Development.

You control all print marketing activity. Old school catalogers still generate half of their sales from print, stunning as that may sound. They know something about Customer Development that most e-commerce brands fail to understand. Of course, that level of knowledge comes at a cost, a cost that paper reps, printers, and postage mavens love.

You control your loyalty program. Points, discounts, promotions, perks. All of this gets communicated in an outbound manner. Use this real estate wisely.

You control your audio and video efforts. Podcasts. YouTube. Instagram. Tik Tok. Every brand great at Customer Development has a credible Audio/Video program. I've worked with several brands who are essentially old-school television stations, sans linear programming. It's a no-brainer, folks.

You control a lot of stuff, but I'm not interested in itemizing everything you control. I'm interested in seeing you do something to facilitate the Customer Development process.

March 02, 2021

Post-COVID Customer Development

Your annual repurchase rate will determine how your brand will emerge out of COVID.

Many of you possess annual repurchase rates < 25%. Your COVID-bump will end when COVID simply becomes a persistent irritant. There will be a ton of pent-up demand for in-person activity. Some of your new customer acquisition gains may continue, most of 'em won't, and with a low repurchase rate your business will revert to a "new normal" quickly.

Annual repurchase rates between 25% and 40% will experience a different dynamic. Their gains will not be temporary, but they won't be lasting either. Expect a year of "compound interest" paired with contraction. In other words, as new customers revert back to a "new normal", you'll see a contraction in sales. However, all of the customers you acquired pay you back compound interest for a year (+/-), offsetting some (or all) of the sales loss from reduced new customers.

Annual repurchase rates between 40% and 60% will have 2-5 years of compound interest that offsets the sales losses from fewer new buyers. This is a fabulous place to be. My simulations show that these brands will be able to fund all sorts of innovation if they budget their profits wisely.

If you are a rare e-commerce brand with annual repurchase rates beyond 60%, you'll be printing money for years because of COVID (assuming your new customer counts thrived as a consequence).

March 01, 2021

Lots of Customer Development Options

If you want to learn about Customer Development at a high level, you simply click here and read for free. This document has been downloaded nearly a thousand times, so there's some interest here.

If you want more explanation and details, you click here and buy the book.

If you are looking for your own, personalized Customer Development project, I have one (1) slot that just opened up from March 15 - April 10. Send me an email (kevinh@minethatdata.com) and heck, before that, click now on the project pricing page so you have an idea of what you'll need to provide for me in order to get started.

Customer Development is the story as we emerge from COVID to find ourselves in a different world. Find out what you'll need to do with all the extra customers you have, or find out how to rebound from being closed at times in 2020-2021.

February 28, 2021

Median Time to Loyalty

Once we know the probability of a purchase at any recency/frequency combination, we can calculate the median time that elapses between a first purchase an loyal status (i.e. 5th purchase): 


Look at the 36-month recency level. After thirty-six months, 36.6% of customers who bought for a first time repurchased. Now read up the column until you see the median ... the period where 18.3% of customers repurchased. That's at the approximate 7 month level.

Perform the same exercise for 2x buyers, 3x buyers, and 4x buyers. You see that the median repurchase interval is about 4.5 months, 4.5 months, and 3.5 months. As the customer moves through the Emergence phase, the customer becomes more likely to repurchase, and tends to repurchase faster.

Add up the median repurchase intervals ... 7.0 + 4.5 + 4.5 + 3.5 = 19.5 months.

It takes about 19.5 months for the customer to achieve loyalty ... if the customer is willing to make the journey. Median Time to Loyalty ... MTL ... is 19.5 months.

Now multiply the percentages at recency = 36 months ... multiply the 1x-2x rebuy rate by 2x-3x by 3x-4x by 4x-5x. What percentage of the customers (based on 36 months of repurchase activity) become loyal (i.e. make it to five purchases)?

The answer is 11%.

You've got a lot of hard work to do, don't you?

  • 11% of first-time buyers will become loyal.
  • MTL ... Median Time to Loyalty ... is 19.5 months.
Instead of focusing on loyalty programs, why not focus on Welcome/Emergence efforts that reduce MTL and increase the fraction of customers who become loyal?




February 25, 2021

Big Differences

Yesterday we evaluated "Brand A", with an approximate 30% annual repurchase rate.

Here is "Brand B", with an approximate 45% annual repurchase rate.

These tables are so darn "delicious".

Read across the Recency = 1 rows in both tables. Customer Development in each table (meaning each brand) is essentially the same.

Read across the Recency = 3 rows in both tables. Customer Development in each table (meaning each brand) is different! "Brand A" is losing customers, "Brand B" is doing a better job of keeping customers.

Read across the Recency = 12 rows in both tables. The differences are stark.

Read across the Recency = 24 rows in both tables. The differences are like night and day.

By the way ... both brands are in the same category, so it's not like one brand sells something that customers want less often. Nope. This is what it looks like when one brand is really good at Customer Development. And this leads to an annual rebuy rate that is fundamentally better at "Brand B". That leads to a powerful file that leads to much more profit, so much more profit that "Brand B" can spend more on marketing programs, causing more repurchase activity, making Customer Development look even better.

If you are "Brand A" and you don't have money to do what you want to do, get clever.

  • Hire some people who know how to make money on Instagram.
  • Hire some people who know how to create entertaining videos.
  • Hire a vendor who knows website personalization inside and out.
  • Hire a vendor who knows email personalization inside and out.
  • Create your daily podcast where you interview your merchants who crave the products they are selling.
  • Develop in-house influencers and unleash them on your "community".
The big differences between each brand represent the fundamental difference in marketing strategy between "Brand A" and "Brand B". Marketing matters.

Are you "Brand A", or are you "Brand B"?

Do you know how to evaluate whether you are "Brand A" or "Brand B"? Email me for details and I'll help you figure it out.











February 24, 2021

Comparing Two Companies

Here's the Average Monthly Grid for Brand "A" (this brand has an approximate 30% annual rebuy rate).


And here is the Average Monthly Grid for Brand "B" (this brand has an approximate 45% annual rebuy rate).


Tell me what you see here?

I'll give you a day to find the key difference between the two brand. Talk to you tomorrow!



February 23, 2021

Loyal Buyers Decay, Too

Why do you need a loyalty program (and FYI, before I spent so much time on Customer Development in 2020-2021 I wasn't a fan of 'em, but I'm warming to them now)?

Let's look at our table from yesterday, what I call the "Average Monthly Grid", showing average twelve-month rebuy rates by recency/frequency combinations.


Read down the "Freq = 7" column. 

Once the customer purchases for the seventh time, the customer has a 73.4% chance of buying again in the next year. That customer is "loyal" based on my definition (>= 60% chance of buying again in the next year).

What happens if the customer lapses just two months, to a recency = three months?

Well, the repurchase rate is down to 59.6%.

According to my definition of "loyal" (>= 60% chance of buying again in the next year), the customer is no longer loyal.

I mean, seriously, the customer just bought for a seventh time and already after just two months the customer is in a serious state of decay.

The loyalty program isn't necessary for a month or two ... it's the opposite of the Welcome situation (where marketing is badly needed in months 1-3 after a first purchase). The customer is quite likely to buy within months 1-2 following a seventh purchase. The loyalty program should be designed to reign-back-in the customer who has just fallen out of a state of loyalty.

That's what a loyalty program should do, quite honestly. It should not interfere with normal buying. It should help bring the formerly loyal buyer who lapses a few months back into the fold, because loyal buyers decay, too.




February 22, 2021

Utterly Beautiful

I could look at this image all day long (to which you might say, "Get a Life, Kevin"):


The image highlights a bit of knowledge that is Central to Customer Development ... "Customer Value Decays".

It's easy to see it when looking at a first-time buyer. Immediately after a first purchase, the customer has a 24.4% chance of buying again in the next year. If the customer doesn't buy that month, the probability of a purchase in the next year drops to 18.6%. Nearly 25% of the future buying potential just disappeared ... after only one month. That's why the Welcome Program is so darn important.

From there, the customer just keeps on decaying. Merchandise will keep the customer interested, no doubt about it. But Marketing plays a huge role in keeping the customer interested. There's the operational stuff like search, there's the owned stuff like email marketing and website personalization, there's content-related entertainment on Instagram and YouTube. All of it matters. You matter!

To me, the table is utterly beautiful.

Tomorrow we'll look at this table again, reviewing loyal buyers.

The day after? We'll compare this company to another company.




Out Come The Buzzwords

It's always interesting to hear Customer Development feedback that comes from outside of the Marketing Department. In one visit, the Inf...