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?

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