Median Time to Loyalty

Once we know the probability of a purchase at any recency/frequency combination, we can calculate the median time that elapses between a first purchase an loyal status (i.e. 5th purchase): 

Look at the 36-month recency level. After thirty-six months, 36.6% of customers who bought for a first time repurchased. Now read up the column until you see the median ... the period where 18.3% of customers repurchased. That's at the approximate 7 month level.

Perform the same exercise for 2x buyers, 3x buyers, and 4x buyers. You see that the median repurchase interval is about 4.5 months, 4.5 months, and 3.5 months. As the customer moves through the Emergence phase, the customer becomes more likely to repurchase, and tends to repurchase faster.

Add up the median repurchase intervals ... 7.0 + 4.5 + 4.5 + 3.5 = 19.5 months.

It takes about 19.5 months for the customer to achieve loyalty ... if the customer is willing to make the journey. Median Time to Loyalty ... MTL ... is 19.5 months.

Now multiply the percentages at recency = 36 months ... multiply the 1x-2x rebuy rate by 2x-3x by 3x-4x by 4x-5x. What percentage of the customers (based on 36 months of repurchase activity) become loyal (i.e. make it to five purchases)?

The answer is 11%.

You've got a lot of hard work to do, don't you?

• 11% of first-time buyers will become loyal.
• MTL ... Median Time to Loyalty ... is 19.5 months.

Instead of focusing on loyalty programs, why not focus on Welcome/Emergence efforts that reduce MTL and increase the fraction of customers who become loyal?

Big Differences

Yesterday we evaluated "Brand A", with an approximate 30% annual repurchase rate.

Here is "Brand B", with an approximate 45% annual repurchase rate.

These tables are so darn "delicious".

Read across the Recency = 1 rows in both tables. Customer Development in each table (meaning each brand) is essentially the same.

Read across the Recency = 3 rows in both tables. Customer Development in each table (meaning each brand) is different! "Brand A" is losing customers, "Brand B" is doing a better job of keeping customers.

Read across the Recency = 12 rows in both tables. The differences are stark.

Read across the Recency = 24 rows in both tables. The differences are like night and day.

By the way ... both brands are in the same category, so it's not like one brand sells something that customers want less often. Nope. This is what it looks like when one brand is really good at Customer Development. And this leads to an annual rebuy rate that is fundamentally better at "Brand B". That leads to a powerful file that leads to much more profit, so much more profit that "Brand B" can spend more on marketing programs, causing more repurchase activity, making Customer Development look even better.

If you are "Brand A" and you don't have money to do what you want to do, get clever.

• Hire some people who know how to make money on Instagram.
• Hire some people who know how to create entertaining videos.
• Hire a vendor who knows website personalization inside and out.
• Hire a vendor who knows email personalization inside and out.
• Create your daily podcast where you interview your merchants who crave the products they are selling.
• Develop in-house influencers and unleash them on your "community".

The big differences between each brand represent the fundamental difference in marketing strategy between "Brand A" and "Brand B". Marketing matters.

Are you "Brand A", or are you "Brand B"?

Do you know how to evaluate whether you are "Brand A" or "Brand B"? Email me for details and I'll help you figure it out.

Comparing Two Companies

Here's the Average Monthly Grid for Brand "A" (this brand has an approximate 30% annual rebuy rate).

And here is the Average Monthly Grid for Brand "B" (this brand has an approximate 45% annual rebuy rate).

Tell me what you see here?

I'll give you a day to find the key difference between the two brand. Talk to you tomorrow!

Loyal Buyers Decay, Too

Why do you need a loyalty program (and FYI, before I spent so much time on Customer Development in 2020-2021 I wasn't a fan of 'em, but I'm warming to them now)?

Let's look at our table from yesterday, what I call the "Average Monthly Grid", showing average twelve-month rebuy rates by recency/frequency combinations.

Read down the "Freq = 7" column. 

Once the customer purchases for the seventh time, the customer has a 73.4% chance of buying again in the next year. That customer is "loyal" based on my definition (>= 60% chance of buying again in the next year).

What happens if the customer lapses just two months, to a recency = three months?

Well, the repurchase rate is down to 59.6%.

According to my definition of "loyal" (>= 60% chance of buying again in the next year), the customer is no longer loyal.

I mean, seriously, the customer just bought for a seventh time and already after just two months the customer is in a serious state of decay.

The loyalty program isn't necessary for a month or two ... it's the opposite of the Welcome situation (where marketing is badly needed in months 1-3 after a first purchase). The customer is quite likely to buy within months 1-2 following a seventh purchase. The loyalty program should be designed to reign-back-in the customer who has just fallen out of a state of loyalty.

That's what a loyalty program should do, quite honestly. It should not interfere with normal buying. It should help bring the formerly loyal buyer who lapses a few months back into the fold, because loyal buyers decay, too.

Utterly Beautiful

I could look at this image all day long (to which you might say, "Get a Life, Kevin"):

The image highlights a bit of knowledge that is Central to Customer Development ... "Customer Value Decays".

It's easy to see it when looking at a first-time buyer. Immediately after a first purchase, the customer has a 24.4% chance of buying again in the next year. If the customer doesn't buy that month, the probability of a purchase in the next year drops to 18.6%. Nearly 25% of the future buying potential just disappeared ... after only one month. That's why the Welcome Program is so darn important.

From there, the customer just keeps on decaying. Merchandise will keep the customer interested, no doubt about it. But Marketing plays a huge role in keeping the customer interested. There's the operational stuff like search, there's the owned stuff like email marketing and website personalization, there's content-related entertainment on Instagram and YouTube. All of it matters. You matter!

To me, the table is utterly beautiful.

Tomorrow we'll look at this table again, reviewing loyal buyers.

The day after? We'll compare this company to another company.

Running An Entirely Different System

If you like basketball, then this is a must-read (click here).

Notice in the article that the coaches running "The System" are not following best practices.

I ran a poll on Twitter, asking readers to tell me how confident they are when a vendor says that the vendor is sharing "best practices" that the vendor is actually sharing best practices (click here). The results were not in favor of vendor suggestions of best practices.

One way of winning in business is to do something different. When everybody is doing the same thing, you go down a different path. How do you think Stitch Fix got to over a billion in sales in under a decade? I mean, the TOLD YOU WHAT YOU WERE GOING TO WEAR. Their "system" is fundamentally different than you having an omnichannel assortment of sameness available in all channels, available to everybody at the same time.

Keep these ideas in mind as you consider your Customer Development tactics.

It's Here: Hillstrom's Customer Development

It took several months to organize the ideas, but here we are ... Hillstrom's Customer Development is now available in Paperback and Kindle (click here).

We have COVID to thank for this booklet and the #1 project request I currently field from clients. Maybe 75% of my client base had gigantic gains in Customer Acquisition since the start of COVID. Clients kept asking a simple question ... "Are these customers converting to loyal buyers??"

I use Twitter to flesh out ideas / hypotheses. It was clear from those following on that platform that very few Professionals had an understanding of how customers migrate from prospect to a purchase to loyalty, if the customer migrates at all. Hence, we have this text, to explain the process.

Now, if you don't want to buy a book and don't like being "sold to" go ahead and click here for a PDF outlining the concepts in the text ... it won't cost you a thing.

If you are in the camp that needs help understanding if your Customer Development efforts in the age of COVID are bearing fruit, click here for project pricing and file layouts.

Whether you want free content, or to pay a small price for a booklet, or you want me to run the analysis for you, rest assured that if you don't understand if you do a good job of Developing Customers, you won't be as profitable over the next few years as you should be. And based on the feedback I've received over the past nine months, very few professionals understand if they do a good job at Customer Development.