There's nothing the Omnichannel experts love more than a "digitally native" brand opening a store.
- "It's proof that the Omnichannel approach to sales is the correct approach."
Helping CEOs Understand How Customers Interact With Advertising, Products, Brands, and Channels
There's nothing the Omnichannel experts love more than a "digitally native" brand opening a store.
This letter is for the third(ish) of my audience that have a strong heritage in catalog marketing. If this isn't your thing, delete, and come back tomorrow.
Dear Catalog CEOs:
Let's see if I've got this right.
Lifetime Value ... known as LTV in the early 1990s and frequently known as CLV today (Customer Lifetime Value), is the outcome of Customer Development efforts.
It is common for "brands" to measure lifetime value on a twelve-month basis, then invest in new customers by spending all of the profit generated by the new customer in the first full year on the file. In other words, the "brand" is willing to lose $18 profit acquiring the customer as long as the customer pays the "brand" at least $18 of profit in the next year.
I'm frequently surprised to hear companies tell me that they are disappointed with the lifetime value metrics generated by their in-house analysts. They'll argue that the measurements are flawed or that the payback windows are not appropriate.
All of this is nonsense, of course.
What the Executive is grumbling about is this ... the Executive is grumbling that her employees are doing a poor job of Developing Customers.
Few people want to face this reality.
But that's what is happening.
If you want great lifetime value metrics, get busy prioritizing the Development of your Customers.
Our Time Lapse Analysis indicates problems.
Now, the problem featured below comes up all the time. What do you think the problem is?Here's what happens: When you increase prices, customers do one of two things. First, they frequently buy fewer items. This doesn't manifest itself in the Development of your Customer File. What does manifest itself is fewer buyers. As prices increase, it is common for it to become harder to find new/reactivated buyers, and it is common for existing buyers to repurchase at lower rates. Both issues rear their ugly heads via poor Customer Development.
We all understand why prices have to increase (in many cases).
But there is frequently a backlash, and that backlash is felt in your Customer Development work.
In case you missed the "danger zone" in the Time Lapse Analysis yesterday, I circled the result for you today.
In these projects, it's usually obvious to the client what went wrong and what needs to be done to fix the problem. I'll frequently complement this analysis with a comp segment analysis so that we can identify merchandising issues that impact Customer Development.
Bad Merchandise = Fewer Customers.
It kind of looks like this (actual data):
I mean, this is awful.The top 60% of the file has about 10% fewer customers in the past year than the year prior to that, and about 15% fewer customers in the past year than two years ago.
Do you see any green cells in the top 60% of the twelve-month buyer file? Just three months ago, that's about it.
This company is doing an AWFUL job of Customer Development. Just AWFUL. The company has basically failed to improve counts among the top 60% of the twelve-month buyer file for twenty-three of the past twenty-four months.
Unacceptable.
Are you running a Time Lapse Analysis? No? Why not?
Contact me (kevinh@minethatdata.com) if you aren't doing this. Let's get started figuring out what is happening to your Customer Development efforts.
What do you think?
There isn't any evidence in the table above that this brand does a good job of Developing Customers. In a Time Lapse Analysis, we should see bigger increases in customer counts at the top of the table than at the bottom of the table.The two columns at the far right of the table show year-over-year and year-over-two-years-ago indexed gains by customer segment. Most of the gains are in the bottom-middle portion of the table, suggesting that the gains in counts are likely customer acquisition driven.
Gains do happen, however, and are (in this case) driven by the COVID-bump experienced by so many e-commerce brands in 2020. Watch how some of those gains move diagonally from top to bottom, from left to right ... meaning that new customers were acquired and those new customers did not repurchase, thereby fading in customer quality.
Time Lapse Analysis is a key component of your Customer Development work. Be sure to run your Time Lapse Analysis right now ... and if you don't have the resources to do it, contact me (kevinh@minethatdata.com) and I will craft a Customer Development project for you.
Here's our Time Lapse Analysis from the past two days.
Remember, green cells indicate areas of the customer file that are growing. Red cells indicate areas of the customer file that are on the decline.We read across the table from left-to-right. Each month that passes is recorded in the table. We get a two year view of overall Customer Development, coupled with two summary columns at the end of the table comparing this year to last year, and this year to two years ago.
What do you see as you read across from left to right?
Well, you see a lot of orange/red, don't you?
This means that the customer file was shrinking. This company was failing in Customer Development activities (or failing at developing credible merchandise).
Are the orange/red cells evenly distributed from top to bottom? The answer is mostly "yes". This means that this brand is failing across all customer segments ... great customers, average twelve-month buyers, newer twelve-month buyers.
Notice that about eight months ago the trend changes ... changes in dramatic fashion. All of a sudden this brand has significant gains in customers, across the board but more heavily weighted in the middle of the table. Hint - this is when COVID started, and this is when this brand experienced big gains.
Notice that the green boxes tend to have a diagonal trajectory (from top to bottom, from left to right). Those are customers who buy and then don't buy again, thereby fading in terms of customer quality.
Companies that do a great job of Developing Customers have a stronger hue of green at the top of the table than at the bottom of the table.
Companies that do not Develop Customers have uniform colors from top to bottom.
Where does this brand fall on that spectrum?
There are several key components of a Time Lapse Analysis.
Here's an example. Say we have a customer who spent $100 one month ago, $100 six months ago, and $100 twenty-four months ago. Say that the weights are 1.00 for one month ago, 0.65 for six months ago, and 0.30 for twenty-four months ago. Weighted spend is 100*1.00 + 100*0.65 + 100*0.30 = $195.
I sum weighted spend for every twelve-month customer.
Then I create twenty-five "tiles" ... four percentile groups of customers, based on weighted historical spend.
I count how many twelve-month buyers reside in each of the twenty-five "tiles".
I then replicate this analysis twenty-four more times, going back in time on a monthly basis.
Say I have 10,000 customers in the top 4%-tile as of today. Say I had 9,800 customers in that tile a month ago. My index becomes 10,000 / 9,800 = 1.02.
Any index > 1.00 is progressively greener in the image above.
Any index < 1.00 is progressively more red in the image above.
More on the Time Lapse Analysis tomorrow.
If you do a credible job of Developing Customers, you'll see your success via what I call a "Time Lapse Analysis".
Here is the image we'll discuss the rest of the week.
The goal of the Time Lapse Analysis is to see how customer counts change over time by quality of customer. If you are Developing great Customers, you'll see more greens in the top rows of the table. If you are failing, you'll see more orange/red colors in the table.More on the Time Lapse Analysis tomorrow.
Think about it this way. A football team drafts players, and those players are not great players, so the football team goes 5-11 for a few years. What happens? The coach is fired. The General Manager responsible for the awful outcome is fired. The new coach and GM have to live with these players for a few years until they can turn over the roster.
Like the NY Jets, right?
The same thing happens in e-commerce. We acquire customers, and then we're stuck with those customers for a few years. If those customers don't perform, if they cannot be Developed, then the marketer or analytics expert or e-commerce executive is fired.
So why would you knowingly acquire customers who you know won't repurchase again? To generate short-term profit? Sure, go ahead. But that doesn't allow your company to achieve lofty goals, does it?
This is actual data from a brand. Here are annual rebuy rates for customers acquired via various channels.
Here's actual data from a brand. I took all first-time buyers, I looked at the products those customers purchased, and then I measured whether the customer who bought the item repurchased within a year. With this data, I aggregated it to one row per item, measuring the repurchase rate of the items sold. Look at the histogram of annual rebuy rates.
Some of the items purchased by first-time buyers lead to outstanding levels of Customer Development, generating customers who have a 40% or better chance of buying again in the next year.
Some of the items purchased by first-time buyers lead to awful levels of Customer Development, generating customers who have a 15% or less chance of buying again in the next year.
Why would you feature items that lead to new customers who have a 12% chance of buying again? Yeah, I can hear you all the way from New England as I type this, yelling at me that those items are profitable. That's a merchandise-first view of the world. That's not how you Develop Customers, however.
Why would you feature a middling item (in terms of the rebuy rates generated by the item) in an email campaign at 30% off if the item yields Customers unwilling to be Developed? Think about it ... maybe the reason you are forced to give customers 30% off is because you loaded your customer files with Customers who are unwilling to be Developed ... because of some of the products you offer.
Or because of the channels where you market to customers. More on that topic tomorrow.
Yesterday I showed you a situation where a brand had no Customer Development Plan to speak of. When that happens, the same items sell at the same rate across all customer segments.
The table above represents actual data for the top 25 items selling at a specific brand.
The table below represents actual data for the top 25 items selling at a brand that knows how to Develop Customers.
This is what it looks like when you are fusing your Merchandising and Customer Development strategies. You pick and choose the products that appeal to customers based on different life cycle situations.
Does that make sense?
It's pretty easy to tell when a company doesn't have a Customer Development Plan.
How can I tell?
You take a look at the merchandise sold by a brand, and you rank-order the items from best to worst for the following:
One of the few interesting things about retail / e-commerce is the fact that, at times, commerce becomes an awful lot like College Football ...