Modern Customer Acquisition

It's not much different than this, is it?

In my first few years post-Nordstrom, the average rebuy rate for twelve-month buyers was around 35%. Today it's around 30%.

Now think about this for a moment. We live in an era where every possible Loyalty tool known to marketers is available, has been vetted, and is either discarded or considered a best practice. We know more about how to retain a good customer than in the entire history of commerce.

And yet ... with all of this knowledge, we're worse at retaining customers.

Either we are really, really dumb (unlikely) ... or something is going sideways paying the keyword brigade in the image above.

Yes, something is going sideways in the image above.

Because we don't bother to analyze or even audit all the new customers we get from the mob (above), we don't know what harm we are doing to our businesses. All we know is we keep paying the crowd above for ... keywords ... not for customers, but for keywords.

The best new customer was once a home-grown prospect. Every step we take away from the home-grown prospect is a step closer to lowering future rebuy rates (and, consequently, lowering future profitability).

Evidence

As you know, I play pickleball. Lots of pickleball. I also coach pickleball in our club (we have more than 1,700 players in our club). Heck, as we speak, I'm watching pro pickleball on Pickleball.tv (on Amazon Prime) ... a player in our club (he also runs my bible study group) is the referee! So yeah, maybe I have a problem/addiction.

Anyway, the coaching part of pickleball is fun because it directly relates to e-commerce. There is a playing style in pickleball, a "best practice" if you will ... based on a style of pickleball played prior to COVID. Drop Shots that lead to dinking rallies. However, when you watch the better players and pros play, you see the opposite. You see speed, drives, attacks. It's a blistering, athletic pace.

In other words, the game evolved and changed post-COVID.

Now imagine how you'd view the world if the game evolved and changed and you did not evolve, you did not change.

I've charted a lot of points, following the difference in style. I've tried to implement the change in style into my game. Guess what? My team scores more points when I play the new style. My team scores fewer points when I play the pre-COVID style. I have the evidence. And yet, when I share the evidence, the old-school crowd digs their heels in. They do not want to change. When they communicate about their old-school style, they don't talk about winning points, the wax poetic about the beauty of the old-school style. They can't talk about winning points, obviously, because they'd have to face the reality they win fewer points. So they focus on the fables, the stories, the nostalgia.

I face the same challenges with clients. I have print-centric clients who are very willing to move into the future ... they are like the pickleball players who adopt the faster-paced attacking-style modern version of pickleball. Then there are the Lemonheads who look to the paper/printing community for guidance. They get nostalgia and fairy tales.

• Example #1 (click here).
• Example #2 (click here).

You can generally tell when you are reading propaganda by evaluating the evidence presented.

• Are examples of sales increases provided?
• Does the author ever talk about profit?
• Does the author cite multiple instances of brands generating increased profit?
• Does the author cite evidence of increases in the size and quality of the twelve-month buyer file?

The Lemonhead loves articles written by thought leaders, and for good reason ... the Lemonhead lacks the strategic thinking and adaptive tactics required to lead his/her company into the future. The Lemonhead is easily seduced.

Fortunately, you are not a Lemonhead.

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Sometimes you run across a glib marketer who thinks that the reason the customer purchases something is because of price. You'll also run across a lot of voices ... those who want you to do what they tell you to do so they get paid, those who want eyeballs and engagement, those who want to do the right thing. Then you have Lemonheads who just want help.

A good place to start (getting help) is to score every new customer to see what they're going to contribute to your business over time. Learn if you're causing problems.

I'll run new customer scoring models on three different customers.

• Full Price:  12mo Rebuy Rate = 25%. Spend/Repurchaser = $160. Value = $40.00.
• 20% Off:  12mo Rebuy Rate = 27%. Spend/Repurchaser = $130. Value = $35.10.
• 50% Off:  12mo Rebuy Rate = 30%. Spend/Repurchaser = $105. Value = $31.50.

Which customer would you rather have?

Which customer is unlikely to purchase at full price, creating a self-fulfilling prophesy?

Score every single new customer you acquire. Compare the future value of recent acquisitions to the customers you used to acquire. Are you doing anything negative that causes the future value of your business to suffer?

Selling on eBay

When I worked at Nordstrom there was a particularly glib vendor rep who visited us every 3-4 months. This person had all sorts of ideas. "Have you ever thought about somehow placing a chocolate on the pillow of a loyal customer?" When we'd explain the obvious reasons why the idea was a non-starter, there was a consistent response ... "I'm not saying you should implement my exact idea, I'm saying it's important to take risks and implement ideas that put the customer at the heart of the customer journey".

Correct ... those sentences did not happen. But sentences very similar to those DID happen. The process was exhausting.

When you aren't accountable for the consequences of ideas, it's easy to come up with ideas ... "we're just spitballing here".

Which brings me to eBay.

Every single vendor employee should be required to sell at least one item on eBay.

Why?

The vendor employee will be met with the heavy and crippling constraints of actually having to implement selling tactics.

• You have to know the condition of your used item in comparison to all other used items that you don't know the condition of.
• You have to know an appropriate price for your used item, given the condition of your item.
• You have to know if you should offer free shipping or have the customer pay for shipping.
• You have to know when to mark down your item when it doesn't sell.
• You have to know if you need to "promote" your item via paid clicks on eBay.
• You have to take insightful images of your item that teach the customer your item is worth purchasing.
• You have to write compelling copy.
• You have to deal with a less-than-ideal e-commerce platform that you cannot change.
• When the item sells, you have to make the post-purchase experience pleasant for the person buying your item. For instance, I leave handwritten notes inside my packages and I communicate with the buyer regarding the timing of leaving the item with USPS.

This process is practical, insightful, and is the exact opposite of "leave a chocolate on the pillow of your customer".

Simply put, the vendor employee will learn all about e-commerce, and be better equipped to offer practical advice.

This applies to any employee at any company, to be honest. Your IT professional would be well served to have to deal with less-than-perfect eBay software. Your VP of Operations would think twice about labeling the merchandising team as "idiots" if the VP had to sell something in the real world.

There's nothing like a little bit of practical experience to help change your perspective when it comes to selling stuff.

Value Grids

You probably create value grid tables for your new customers. Here's an example, comparing twelve-month future value of newly acquired customers based on the number of items purchased and the average price of a item purchased.

This example suggests that discounting is not ideal ... giving the customer 30% off or 50% off to place a first order might result in 2 items at $7.99 instead of 1 item at $14.99 ... but the twelve-month value of the customer with 2/$7.99 is lower than 1/$14.99.

For many of you, the differences are far more extreme than what is presented here.

Score every single new customer ... the day you acquire the customer ... keep track of the differences in customer value over time. Are you slowly throttling down the future value of your business because you are acquiring easy/fickle customers instead of customers you'd prefer to acquire? Are your marketing tactics harming future value?

The Trap

Fifteen years ago it was common to hear legacy leaders lament about trading analog dollars for digital dimes or digital pennies. Especially in media.

This is a common tradition. Big book catalogers lamented that their twice-per-year five-hundred page catalogs were being obliterated by 128 page catalogs with a more-productive assortment. The 128 page catalogers complained that the customers they acquired via e-commerce were worse than those acquired via analog channels. Post-COVID, you heard e-commerce leaders lament new customers acquired via marketplaces were so much worse than those cultivated via their own e-commerce platform.

When I score new customers, it's not uncommon to observe the following situation:

• Acquired via Email Subscriber List: Rebuy = 30%. Spend = $150. Value = $45.00.
• Acquired via Google PLA:  Rebuy = 20%. Spend = $150. Value = $30.00.

Of course you could lament that the Google Product Listing Ad customer is worth 2/3rd what the new customer via Email Marketing is worth. You could even spend less on PLA customers, thinking you don't want customers with low long-term value.

Or, you simply become more "frugal" with the newly acquired Google PLA buyer. Work hard for ninety days to convert the customer to a second purchase, then relent and let the unresponsive customer respond to your "free" channels ... email/sms, free variable cost channels like YouTube, essentially free channels like Instagram etc.

When I score your new customers, you have to fight your instincts ... you don't want to fall into the trap of de-emphasizing customers just because they have lower long-term value. Instead, fight like heck to convert the customer to a second purchase within ninety days ... then relent.

All this gets worse/harder when AI is in control of your new customers ... and that day isn't far off in the future anymore.

Examine Your Own Habits

I'm writing this on Friday morning. Do you know what I watched late last night? I watched salmon jumping Brooks Falls in Alaska, dodging hungry bears. It's the third summer I've watched this feed (click here).

Not watching Colbert. Kimmel. Gutfeld. Seth Meyers. Fallon. None of 'em. For me, that ended in 2015 after Craig Ferguson and Letterman exited stage left.

One can say that the current political/bribery-incented environment killed the Colbert show, and one would probably be right. You are smarter than that, however. You are not a Lemonhead. Here's a tidbit from Prof. Galloway's recent newsletter (click here).

If somebody ... anybody ... was watching late night comedy-based television, ad revenue would not have collapsed 50% in six years. Here's another peach of a comment ... catalog brands lived through this situation (because they didn't adapt to changing customer behavior), and are now saddled with a retired customer and limited/no access to a younger audience because the products they sell do not appeal to a 33 year old living in a condo in downtown Bellevue. Here's the comment.

• But less than 10% of The Late Show’s audience is between 18 and 49 years old, that coveted demographic still in their mating years and making irrational, high-margin purchases. 

One of my favorite books of all time (click here), written decades ago, talks about how industries evolve. Thousands of startups compete, two or three or four win and control the market, only to be nibbled away at by thousands of startups who take a different approach to solving the original problem.

The salmon/bears at Brooks Falls are one of the thousands of startups nibbling away at legacy/linear programming.

Twenty-five years ago catalog marketing (the establishment) was nibbled away at by e-commerce. Today catalog marketing is long gone. You will hear otherwise on LinkedIn.

Today e-commerce is about to be nibbled away by AI. Seriously. Many in e-commerce just don't realize it yet.

You will have a front-row seat for the madness. We will measure your new customers ... daily in many cases ... trying to understand how the upcoming madness impacts your business. You will not be a Lemonhead arguing in 2030 that an omnichannel approach to AI and e-commerce is the path going forward.

Examine your own habits. How have you changed what you watch for entertainment? What do you listen to for entertainment? How do you shop for what you want/need? How do your behaviors align with the company you work for? What does your company need to do to change? Is your company capable of changing? Is your boss a Lemonhead?

You might have noticed a preponderance of Lemonhead photos in recent posts. Outside of the obvious reason for publishing those images (use of AI, the preponderance of actual Lemonheads in the wild), you respond to them. Oh do you respond to them. You click on them. You are 2x-4x more likely to click on a Lemonhead image than you are to watch a video of me telling you what to specifically do to be more profitable. I'm examining your habits, and am changing my messaging in response to your habits. How are you changing in response to the habits exhibited by your customers?

Did you hear that Microsoft is laying off 15,000 people this year? AND THEY'RE WILDLY PROFITABLE!!

The age of human beings "working" is ending (yes, I'm exaggerating). We all have to be so much better than a computer that can program itself, or we don't have a purpose. What can we offer that a computer cannot offer?

In the near future, you'll outsource most of your e-commerce tasks to AI. AI will decide who your customer is. That's why you and I are going to partner on new customer measurement ... we HAVE to ... somebody has to demonstrate that technology is making the right decisions.

Ready to go?