January 12, 2022

Managing A Customer File

Every one of you works for a company that has a customer file. As a consequence, every one of you plays a role in building and growing your customer file. 

Think of your customer file as an investment that pays you back interest and/or dividends over time. It's like a stock. Apple if you do things well. Sears if you mess up. Your customer file is a reflection of your marketing strategy interacting with your product strategy.

Loyalty experts demand that you focus on your best customers - that you reward them (often by asking them to pay less for items which means you have less profit which means you can't invest as deeply in new customers which means you'll have fewer new customers tomorrow which means fewer loyal customers in the future).

Here's a business that is kind of stuck. In the future, the business is forecast to contract.

There's a lot of data there - it isn't the easiest image to read.

The brand is forecast to decline from $21.6 million today to $19.4 million in five years. I'm confident Management finds that outcome "unacceptable".

So let's look at the 12 month existing 3x+ segment ... these are customers who bought two years ago and bought 3+ times in the past year. They are the best customers. There are only 2,633 of them. They have a 74.4% rebuy rate. Let's assume that somehow, somehow, marketing can implement a loyalty program that causes 78% of these customers to purchase instead of 74.4% on an annual basis. Let's assume they do this every year for the next five years. What does the business look like?

You can see that the top-line improves ... after five years, the business is forecast to generate $20.0 million instead of $19.4 million. So five years of hard work on the very best customer segment results in a business generated $600,000 more in sales. How much money did you have to invest to get such a paltry increase?

This is the "loyalty problem". You work so hard to cater to your loyal customers and you get so little in return. The challenge this brand faces, long-term, is not solved via loyalty programs. The business is still stuck, contracting over time, and a modest lift on top of a stuck/contracting business is not a solution to the problem.

Tomorrow we'll extend the argument a bit.

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