The Customer Emerges

Last week we talked about the attributes that customers possess after a first order. Those attributes separate customers who are unlikely to purchase a second time to customers who are more likely to purchase for a second time

When the customer purchases for the second time, the potential of the customer Emerges. In other words, you use print and email marketing and website personalization to give your first-time buyers the best chance to purchase for a second time ... you Welcome the customers and treat them the best way you can to facilitate a second purchase.

With each additional purchase, the customer becomes more likely to purchase again. The process begins to accelerate, and your role in Developing the customer changes. 

Here are the results of what is called a "Life Table". In the table, we look at conditional probabilities of buying again based on where the customer is in the life cycle (frequency - across the top of the table) and recency (months since last purchase ... the rows of the table).

Click on the table to get a better view of the information. I want you to look at the "1x to 2x" and "2x to 3x" columns in the table under the "Incremental Rebuy Rates" column.

Let's read down the "1x to 2x" column first. When we acquire a customer, the customer moves into the Welcome stage. In the acquisition month, the customer has a 4.5% chance of buying again. If the customer does not repurchase that month, the customer degrades down to a recency of one month, where the customer has a 7.0% chance of buying again. If the customer does not repurchase that month, the customer degrades down to a recency of two months, where the customer has a 3.0% chance of buying again. The customer is beginning the process of Retirement (even though the customer just bought for the first time). You are losing the customer.

However, if you get the customer to purchase for a second time, the customer begins to Emerge ... the customer has Potential. Read down the "2x to 3x" column.

• 7.7% chance of buying for a third time in the 2nd purchase month.
• 16.7% chance of buying for a third time if the customer lapses to Recency = 1 month.
• 5.2% chance of buying for a third time if the customer lapses to Recency = 2 months.
• 4.0% chance of buying for a fourth time if the customer lapses to Recency = 3 months.

The "Retirement" process is mirrored here, but the incremental repurchase rates are higher.

Now look at cumulative repurchase rates.

• 1x to 2x through three months = 15.6%. 1x to 2x through twelve months = 24.7%.
• 2x to 3x through three months = 30.0%. 2x to 3x through twelve months = 43.9%.

If you get the customer to a second purchase, the customer begins to Emerge ... the customer is beginning the journey to becoming a loyal buyer.

And if you can push the customer from a 2nd purchase to a third purchase, the story gets even better as you watch the customer migrate from a third purchase to a fourth purchase.

• 1x to 2x through three months = 15.6%. 1x to 2x through twelve months = 24.7%.
• 2x to 3x through three months = 30.0%. 2x to 3x through twelve months = 43.9%.
• 3x to 4x through three months = 44.9%. 3x to 4x through twelve months = 58.8%.

Finally, the customer can be pushed from a 4th purchase to a 5th purchase, and that's where the customer is cemented in Loyal status.

• 1x to 2x through three months = 15.6%. 1x to 2x through twelve months = 24.7%.
• 2x to 3x through three months = 30.0%. 2x to 3x through twelve months = 43.9%.
• 3x to 4x through three months = 44.9%. 3x to 4x through twelve months = 58.8%.
• 4x to 5x through three months = 59.7%. 4x to 5x through twelve months = 71.8%.

You've got it ... the customer is now Loyal!!

The process of going through a 2nd/3rd/4th purchase stage is called "Emergence". You "Welcome" a customer and encourage a second purchase ... then you do the hard work of pushing the customer through the Emergence stage into Loyalty. Each step in the process you are rewarded, because the customer becomes more and more likely to buy again.

It almost seems like we're going to need a Customer Development Score (CDS) to manage this process, doesn't it? I'll bet this series ultimately takes us to a Customer Development Score.