A Quirk In Customer Response

Remember our Life Table?

Take a look at two cells ... read down the cumulative rates for conversion from a 1x buyer to a 2x buyer. What are the cumulative rebuy rates at 3 months, 12 months, and 24 months?

• 3 Months = 14.7%.
• 12 Months = 29.8%.
• 24 Months = 38.9%.

Ok, we're going to run a little experiment here. Let's say that we implement a "Welcome Program" and for months 0/1/2/3 incremental rebuy rates increase by a whopping 20% (which is achievable). What do cumulative rates look like if we do that?

Here are the cumulative rebuy rates at 3 months, 12 months, and 24 months.

• 3 Months = 17.5%.
• 12 Months = 32.1%.
• 24 Months = 40.8%.

 Did you notice anything interesting?

• 3 Month Gain = 17.5% vs. 14.7% = 2.8% points, increase of 19.4%.
• 12 Month Gain = 32.1% vs. 29.8% = 2.2% points, increase of 7.7%.
• 24 Month Gain = 40.8% vs. 38.9%, 0.9% points, increase of 4.9%.

A professional recently asked me "Can I fundamentally increase rebuy rates?" My answer is generally "no", and the person asking the question typically looks at me like I'm a moron.

Well, there's a reason you can't fundamentally increase rebuy rates ... and that reason is math.

You run the Welcome Program because you hit the customer when s/he is responsive ... you push the customer into higher frequency segments faster. But having done that, you don't fundamentally alter the gravity of your business ... the merchandise you offer mostly determines your annual repurchase rate. Heck - notice that three straight months of 20% response increases only yield a 19.4% cumulative increase.

It's simple math ... math that demonstrates that the merchandise you sell largely dictates your annual repurchase rate. Now that you know that, take advantage of your Welcome and Anniversary programs, enjoy the profit generated by the programs, but don't expect dramatic improvements in annual repurchase rates, ok?

Merchandising Changes

This is the traditional "Class Of" table, looking at classes of merchandise.

Notice that this business is growing at a nice rate.

Also notice that the strategy for new and existing merchandise is a bit chaotic. There's a really nice class of merchandise from 2017, but in 2018 strategy reverted back to historic levels ... and ... it reverted back to historic levels on far fewer styles.

In my project work, I don't penalize anybody based on how many new styles are introduced. I only care about results. The table above exhibits good results, though the results aren't designed the way I'd design them. I don't like chaotic new merchandise performance. I do like steady growth as long as profit objectives are met.

The Life Table Illustrates A Key Benefit

Here's a business that doesn't have much of an "anniversary" effect ... look at months = 11/12 ... incremental rebuy rates don't change a whole lot (they improve marginally).

This business does possess an interesting dynamic. Notice how incremental rebuy rates at month = 2 are higher than at month = 0.

Also notice how incremental repurchase rates don't dip under 1% until the customer has lapsed bast about eighteen months.

This is the life table from a credible catalog brand. The cataloger leverages catalogs to encourage cross - shopping across departments. Even after twelve months of recency, the customer is still responsive.

E-commerce brands that have highly credible email marketing programs exhibit comparable dynamics.

If incremental repurchase rates dip under 1% prior to twelve months of recency, it is possible that your marketing program isn't very solid.

Awareness vs Acquisition Problems

Here's the "Great Eight":

1. Audience.
2. Awareness.
3. Acquisition.
4. Welcome.
5. Anniversary.
6. Optimization.
7. New Merchandise.
8. Winning Merchandise.

Run your comp segment analysis. If you see this, you have an Acquisition problem.

Fifteen months ago, something changed. The counts of new + reactivated buyers reversed, and since then new + reactivated buyer counts have been in decline. This is an Acquisition problem. Somebody decided to cut back on acquisition spend.

This is what an Awareness problem might look like.

Of course I'm exaggerating here - but on average, the numbers consistently trend down. This is what catalogers have run into - they've gone to the co-op Pez dispenser too many times and there isn't a lot of candy left.

Awareness Problem:

• Customer Acquisition counts have trended negative (maybe 2 out of 3 months, on average) for several years.

Acquisition Problem:

• There is an "inflection point" where somebody made a decision to spend less and as a result metrics look bad.

Scott Galloway / Code Commerce Presentation

You've probably already viewed this, but if you haven't, view it and think about it (click here if you are viewing this via email).

Waffle House

When a hurricane hits, you can bet on two things.

(1) Waffle House will be open if they can be open (click here).

(2) Waffle House earns a ton of free advertising because they are open if they can be open.

Now yes, there's a safety issue and somebody somebody will get hurt and there will be a liability issue.

Assuming that never happens, Waffle House has a low-cost / no-cost customer acquisition program that never fails to get attention during trying times.

Yes, there is a parallel for your business. There is something you can do as well, something that gets you free attention. If you don't have anything that comes to mind, you aren't trying hard enough.

We're missing two key components in the "strategies" we employ.

• Not enough Awareness (Waffle House is brilliant at generating awareness).
• Not enough New Customers.

Why not get started with an Awareness program? Do something!!!

The MineThatData Elite Program!!

It's time for the third-and-final run of 2018 for The MineThatData Elite Program!!

As usual, you'll get our array of rolling twelve-month file metrics and comp segment metrics ... both designed to help you understand and diagnose what is going right/wrong with your business.

In this run, you'll also receive a life table analysis designed to illustrate whether your business needs a Welcome Program and/or an Anniversary Program (hint - you might just learn you need both). I will explore how new customers behave immediately after they are acquired. I will explore whether seasonal buying trends are a big deal or not ... and not just Christmas, but any seasonality (i.e. October outerwear buyers, Spring seed buyers, etc).

Cost? It's practically free.

• $1,800 for first-time buyers.
• $1,000 for anybody who participated in one of the eight prior runs.

Contact me (kevinh@minethatdata.com) for file formats and data requirements.