Following The First-Time Buyer

Yesterday we started with a grid of 10,000 first-time buyers. We had a grid of repurchase probabilities, remember?

This grid allows us to follow this cohort as it migrates over time. After one month, for instance, we know that 17.3% will purchase again (see the freq = 1 / recency = 1 cell above). This leaves us with a cohort that has begun the process of evolution.

Now we apply probabilities to the two cells in the table / the 17,300 2x buyers have a 24.4% chance of buying again, while the large cohort of 1x recency = 2 buyers has a 9.1% chance of buying again.

The cohort is evolving nicely, don't you think?

After three months, the cohort looks like this:

We have a big glut of mostly inactive customers with recency = 4 months, and then a small group of a few thousand highly active customers.

What does the cohort look like after a year?

We have 57,000 customers who have yet to purchase for a second time ... implying a 43% annual repurchase rate for first-time buyers (which is quite high - most of my analyses show that first-time buyers have a 20% - 35% repurchase rate). A handful of highly loyal buyers have moved along the loyalty process rather quickly.

FYI - here are repurchase rates for 1x customers by recency segment.

• Recency = 01, Rebuy = 17.3%.
• Recency = 02, Rebuy = 9.1%.
• Recency = 03, Rebuy = 5.7%.
• Recency = 04, Rebuy = 4.0%.
• Recency = 05, Rebuy = 3.5%.
• Recency = 06, Rebuy = 2.8%.
• Recency = 07, Rebuy = 2.3%.
• Recency = 08, Rebuy = 2.0%.
• Recency = 09, Rebuy = 1.9%.
• Recency = 10, Rebuy = 1.6%.
• Recency = 11, Rebuy = 1.5%.
• Recency = 12, Rebuy = 2.0%.
• Recency = 13, Rebuy = 1.3%.
• Recency = 14, Rebuy = 1.0%.
• Recency = 15, Rebuy = 0.9%.
• Recency = 16, Rebuy = 0.7%.

Based on what you see there, when is this customer "responsive"?

• Within 3 months of a first purchase.

That's where your efforts need to be focused. If you have a magical marketing strategy that works 10% better than what you are doing today, you are much better off getting 10% of 9.1% on a recency = 2 buyer than getting 10% of 0.7% on a recency = 16 buyer, right?

Tomorrow we'll show you the evolution of a 1x / 16 month buyer. Get ready to be disappointed.

Grids

You probably have a "grid" of customer response posted in your cubicle, right? The grid looks something like this.

For an "average" month, the grid shows you the probability of repurchase (in the next month) for a customer with specific Recency/Frequency attributes.

And quite honestly, all of the secrets of your business are embedded within this table. 

The table allows us to follow a cohort of customers over time - we get to see how the customers evolve/change as time progresses.

Tomorrow, we'll follow a cohort of customers who just placed a first order.

This week, we're going to learn why almost all of your marketing efforts should be focused on your 0-3 month buyer file or on customer acquisition activities, ok? I know, I know, your vendors are going to tell you how critically important it is to "win-back" a lapsed buyer. Well, that's how THEY make money. You generate profit by focusing on quickly converting 0-3 month buyers. Make sense?

P.S.: Think about this for a moment. Let's say you work with a vendor for 2-3 years, and then you stop working with them. When does the vendor spend the most time with you? The vendor spends the most time with you when you are in 0-3 month status - often trying to get you to cross-over to other products. How often does the vendor reach out to you after you stopped working with the vendor for two years? So yes, vendors are practicing the very tactic I'm going to focus on this week.

A Labor Day Weekend Example of Low-Cost / No-Cost Customer Acquisition

Here - read what Amazon is doing with Twitch (click here).

What is the parallel for your business?

Try Something!!!!

P.S.: Courtesy of Seth Godin, we have this example of doing things with boring products (click here).

Tactics

Three things happen as an industry consolidates:

1. Knowledge is pushed out of brands and in to vendors.
2. Vendor knowledge centers on tactics and not strategy.
3. Brands, consequently, leverage tepid strategies.

Look at this tweet (click here). This is a classic vendor-centric view of the world ... the focus is on micro-tactics (which are absolutely important, don't get me wrong here).

But what about corporate strategy?

That's your job.

As an industry consolidates, somebody has to be a Leader, a person who provides a path out of the woods.

Why can't that person be you?

Yet Another Example of Low-Cost / No-Cost Customer Acquisition

You probably read Mailchimp's "What's In Store" ... and saw this earlier today (click here).

The key comment ... "they threw all the events". The Soda Parlor host non-stop events ... check 'em out on Facebook (click here). Look at 'em all!

I know, I know, you are a catalog brand and you don't have a physical location so how the heck can you have an event?

• Hint - you can have online events - video - every single day if you want.

I'm not saying we don't work hard. We work "differently". Other companies hustle the living daylights out of their business. We hustle the living daylights out of decile eight of a co-op overlay upon lapsed buyers. If you view the world this way, we're not getting much of a return on investment on that activity, just like hustle generates minimal return on investment on in-store events. But there's one difference ... the hustle of in-store (or online) events aligns with the future ... the hustle associated with decile eight of a co-op overlay upon lapsed buyers does not align with the future.

Make sense?

Do you disagree?

If you disagree, send me your thesis, and I will publish it for all to read. Send it right now (kevinh@minethatdata.com). If you want to keep it private, send me your thesis and I won't publish it. Ok?

Consolidation

I have a running joke I repeatedly employ on Twitter:

• "The future of retail is one CEO and no other employees. The CEO manages vendors and algorithms, both responsible for running the business."

As Private Equity and Catalog Holding Companies gobble up distressed catalog brands, the future becomes clear ... employees are going to pay the price.

I'm aware of a company that used to have a 25+ person marketing department ... now down to about 10 employees. Everything that can be outsourced is outsourced ... so far. 

A Catalog Holding Company with 10 brands will leverage relationships across brands.

• HR: One department with satellite divisions.
• Distribution Center: You only need one and you'll staff it with robots.
• Call Center: Send it overseas.
• IT: Outsource one corporate database to Merkle (or to Google long-term ... think Wal-Mart / Google relationship).
• Creative: One centralized team in the short-term, outsourced to vendors in the long-term.
• Merchandising: One centralized team in the short-term, outsource the math to IBM's Watson long-term.
• Analytics: One centralized team in the short-term, outsource via voice to Google/Adobe/Amazon long-term.
• Finance: Individual teams in the short-term coordinating through a central office. Cloud-based services in the long-term.
• Marketing: One centralized employee pushing buttons in the corporate office - everything outsourced to vendors & algorithms (ultimately, everything is outsourced to Google + Facebook + Amazon + Co-Ops + Search Vendor + Email Vendor + Social Vendor).
• Website Ops:  

You'll have specialized jobs ... for instance:

• Chief Vendor Officer (CVO): Since everything is outsourced, you'll have a CVO (likely a Lawyer) who manages all of the relationships ... the CVO will have a small team to help across brands.
• Chief CrossShop Officer (CCO): This person dictates to each individual brand what the brand might do to generate value for all other brands in the portfolio.

If you are a vendor, you'll be thinking five steps ahead and will create an offering that aligns with this worldview.

If you are an employee, it's gonna be hard to get a job at a traditional "brand".

One of the reasons so many people are exiting the catalog industry is because what I've described above has already been happening for more than a decade. Few want to talk about it, because it's painful to think about the repercussions.

Consolidation of the industry will yield consolidation of employees. We're in the process of outsourcing employees. Employees will move to other industries. Think carefully about what happens when an industry is gutted down to algorithms and vendors, and plan accordingly.

More Low-Cost / No-Cost Customer Acquisition Examples

Here's Norm Macdonad's show on YouTube - Season 3 premiere featuring special guest Jerry Seinfeld (click here).

Here are two of the show's sponsors ... first Boll & Branch (click here).

And then there's MeUndies (click here).

Neither company is fundamentally different than your company ... except they're pursuing low-cost / no-cost customer acquisition programs. Seriously - how much does it cost to sponsor a podcast?

Try something!!

P.S.: Click on the Membership Tab (I'll make it easy for you - click here). Look how easy they make it to get you started buying underwear. You are in their membership program and you're getting a new pair of underwear each month. Do you have a program to get the customer to buy something MONTHLY?! No? Then Try Something, ok?!