Inflection Points and Seasonality

There's a place along the California coast where Elephant Sea Lions gather to breed, raise children, bark at each other, establish dominance, and generally lay around.

They follow the same pattern, every year.

Many of your customers follow the same pattern, every year. I analyze the patterns all the time. So many of you have customers marooned on Christmas purchases ... they buy every year between November 20 and December 20. That's it. This means there are two key inflection points worth thinking about ... marketing to this specific customer beginning October 1 each year, and then having your Analytics team identify customers in this segment who purchase in Jan / Feb / Mar / Apr / May / Jun / Jul / Aug / Sep / Oct  because those customers experience a true inflection point (new seasonal purchase), and will behave differently as a consequence.

Something Different - Inflection Points

There are many ways to be different, ways that lead to Inflection Points.

Yeah, an office building.

Years ago, I had a client that printed a message on a card in outgoing packages, telling the customer that the brand put a "ghost" in the package. Fun, who wouldn't want a whimsical ghost in their home? But you can test it, and you can see if customer loyalty increases when a whimsical ghost message is placed in an outgoing package. If it does, you've just found a creative inflection point.

Customers generate their own inflection points (a 2nd purchase, becoming a loyalty member, buying from a key category).

Marketers influence inflection points by doing something different.

Impossible Inflection Points

Last week I ate at multiple one-star MICHELIN restaurants. That's what makes vacations fun!

Now, a one-star MICHELIN restaurant can offer an impeccable dining experience at $270 per person, or, the restaurant can offer an impeccable dining experience for just $32.

Either way, the restaurant did a bunch of things right in the past, earned a MICHELIN star, and has now created a situation nearly impossible to manage. Customer expectations are sky high. It will be easy to disappoint the customer, it will be hard to delight the customer. You just do your best to maintain a very high standard.

This is where I start receiving emails from intrepid readers, with quotes like this:

• "Kevin, you don't understand. We are unique and special, but we sell widgets. Widgets are commodity items sold at the lowest possible cost. What inflection point matters for us? We aren't a MICHELIN star restaurant, we're a purveyor of widgets?"

Of course, there are inflection points for the purveyor of widgets.

But there is nothing special about your business. You've designed a boring business. As a result, your struggle is different.

• The one-star MICHELIN business deals with nearly impossible inflection points.
• Your business deals with very boring inflection points.

The one-star MICHELIN business must be creative, must change, must be excellent.

The purveyor of widgets? The rules are very different. Make sure the customer needs widgets a few times per year, make sure your prices are fair, make sure you get the customer a widget immediately. Maybe you hire a "Widget Influencer" to create programming on your YouTube channel, and you link her fabulous shows to increased sales as an inflection point. But make no mistake - you are in a different business.

Negative Inflection Points

You need to get gas ... tank is low and time is short. So you pull up to the pump, and are greeted with this little gem.

In your customer data, you'll notice that one customer out of a thousand process the QR code and sign up for either Silver, Gold, or Platinum level rewards. That's an inflection point.

Your analytics team measures the positive side of the inflection point.

Your analytics team cannot measure the negative side of the inflection point.

• I get $0.75 off each gallon of gas at my QT store by pairing my grocery id to my gas purchase.
• I get $0.10 off each gallon of gas at Shell by accepting PLATINUM STATUS.

Where do you think I'm going to get gas next time?

Each of us manage a business loaded with negative inflection points. I once had a Marketing Executive tell her CEO not to trust me because my website looked like it was created during the Bush Administration. That's a negative inflection point. It's our job to minimize negative inflection points.

Inflection Point: The Camp Fire

Inflection points happen in different ways at different times.

For instance, if you own an RV, you visit a lot of campgrounds. There are two first-impressions you get at a campground. At check-in, you'd probably prefer to walk into a modern office than a double-wide trailer from 1994.

The second first-impression happens when you arrive at your campsite.

Almost every campsite offers a picnic table. That goes with the territory. Some campsites are paved (this one isn't).

But look at the little campfire opportunity.

If you run a 300 site RV campground, it will cost you $79 * 300 = $23,700 to furnish all sites with a campfire pit.

And yes, most of your customers are passing through, they aren't returning.

They are talking, however. Going the extra mile means that an RV customer will recommend this place ... your future new customers come because you offered this little nicety to a current customer. You spend $23,700 in 2021 to obtain new customers in 2024 ... and you cannot connect the 2024 customer to the 2021 purchase of camp fire pits.

So yes, this is an inflection point. Not one you see in your data, but an important one nonetheless. The best performing clients I work with cannot track 20% to 50% (often more) of their new customers. They have word of mouth. Word of mouth is often generated via product/creative inflection points.

New Pilot Project

When I have a new product offering, I share it with you, the loyal reader, at a significant discount. You help me test out a pilot product, you save money.

In recent months, my Marketing Budget Experiments projects lead clients to a common question ... "how do I increase customer loyalty?" With new customers becoming harder to acquire and more expensive to generate, some are electing to swing back towards loyalty/retention. In my project work, there are key Inflection Points where your brand can facilitate increased loyalty. There are obvious ones like Christmas, or Spring if you are the gardening world. There are profitable ones, like opening a proprietary credit account.

Your brand possesses key inflection points - and my new Loyalty / Inflection Points pilot project is designed to help you find them, score your customer base, and then act upon what you learn.

Read here for more details.

Customer Loyalty:  Inflection Points

Kevin Hillstrom: President, MineThatData

September 13, 2023

  

 

 

Inflection Points > Points

 

In my Loyalty projects, there are inflection points in the trajectory of the customer that matter. When the customer purchases as a result of reaching an inflection point, the customer becomes more loyal.

 

The marketers I work with view this almost from the opposite point of view. They create programs that offer points, thinking that customers are motivated by points to the point of spending more to earn more points faster so that the customer can earn a discount. This process rearranges the transfer of profit from the customer to the brand. The brand (in theory) holds more profit in the short-term, giving up profit longer-term in exchange for a customer that (in theory) is more loyal. Would the customer have become more loyal without the loyalty program? Few can answer that question, and that’s the problem when brands view Points > Inflection Points.

  

 

What Are Inflection Points?

 

Inflection Points are situations where customers transition from being less-valuable to more-valuable. Every brand has situations where the customer makes a decision that significantly alters future profitability.

Inflection Point:  When a customer purchases for the first time, there is a small window where the customer is likely to purchase again. This window is typically open for 3-12 weeks. The customer expects the first purchase experience to be good (not perfect), and the customer sometimes looks to “complement” the first purchase with additional merchandise. If you want loyal customers, you have to assist the customer as the customer goes through this critical inflection point. This situation is not solved by “earning points”. This situation is solved by paying attention to the customer. Are you a B2B marketer? Yes? Did you reach out to all first-time buyers who spent more than $500 on a first order to make sure that the order was executed perfectly, and if not executed perfectly, did you remedy the situation? Are you a B2C marketer? Yes? Did you analyze your visitation data to see if the customer is looking to complement the first order with additional merchandise, and if the answer is “yes” did you do something to encourage the customer to purchase for a second time? These are all important components of a loyalty program. You cannot have a loyal customer unless you convert a first-time buyer to a second purchase. Inflection Points > Points.

 

 

Inflection Point:  Anniversary events are very important. Say you sell products that help an organization run an annual conference. For each of the past two years, the customer spent $12,000 with your brand in July. What are you doing with this specific customer this June/July? Are you a B2C brand? You have a significant minority of your customer base who only purchases in November/December. How much money do you spend trying to convert the customer to a purchase in January-October? How much money do you spend trying to convert the customer to a purchaser prior to the Anniversary (Christmas) Inflection Point? Should you spend money on a purchase that will likely happen anyway? Should you spend money trying to force the customer to do something the customer does not want to do? There aren’t easy answers to those questions. There are, however, Inflection Points that need to be addressed. Learn what your Inflection Points are, and have a strategy in place to address customers who are about to enter a key Inflection Point.

 

 

Inflection Point: At some point, your customer changes behavior. If you work at Starbucks, you notice that Heather is buying a drink every single morning, Monday – Friday. That’s an Inflection Point. Heather is transitioning to a full-on addiction. Your job changes as well – you harvest profit from her addiction by making her purchase experience as easy as possible. She’s going to purchase every morning, so 20% off doesn’t make any sense. Points “might” make sense if you are leading Heather toward something she aspires to. If you work in B2B, the customer who previously spend $250 a year spends $1,400. That’s an Inflection Point. The customer trusts you more, and as a consequence you need to work harder to keep that trust. Many marketers wait for an Inflection Point like “The Customer Just Spent $2,500 in Total, The Customer is Now Loyal and Eligible for Points”. View this in an opposite manner. Think this way … “The Customer Just Reached An Inflection Point and is About to Become Loyal so Let’s Close the Deal”.

 

When I worked at Nordstrom (2001-2007), we held our Anniversary Sale every year in late July – early August. Our merchandise was offered at 20% off – new Fall products. Customers went bonkers over this sale – we only had five sales per year so 20% off was meaningful. However, we allowed “special” customers to have early access to our merchandise. They could “preview” the assortment a week prior to the sale, going “behind closed doors” to see the product. They could pick out whatever they wanted. We’d hold the products for them, and on the first day of the sale the customer could walk into the store, pass the feeding frenzy, and walk out with his/her merchandise, showing off to the customer that s/he was “special”.

 

If a customer spent $700 in the year prior (I believe it was $500 if the customer was a Nordstrom Credit customer), the customer earned this “pre-sale” experience. We sent period messages to the customer, telling the customer how close the customer was to earning this “status”. Our deadline, if I remember correctly, was June 1 to earn “pre-sale” rights. We’d send messaging to the customer leading up to June 1. No points. No other incentive. Just spend $700 to earn the right to buy merchandise one week early … no discount/promotion on top of the sale price every other customer paid.

 

On an annual basis, we learned (via control groups) that our customer base spent $100,000,000 more per year (generating more than $25,000,000 per year in incremental profit) … splitting dollars during Anniversary Sale and in the months leading up to the sale to hit a $700 spending level. Inflection Points were critically important … Anniversary Sale was a key Inflection Point … communication in April/May telling the customer that the deadline to spend $700 was fast approaching was another key Inflection Point.

 

Also – we knew that our better customers purchase about six times per year … $700 of annual spend translated to about six purchases per year. The $700 Inflection Point (which triggered special status during the Anniversary Sale) matched the point where we knew that Customer Lifetime Value surged.

 

You have similar dynamics in your business. Learn how your customers interact with your Events. Do any Inflection Points interact with key Events? If the answer is “yes”, you too can create a Nordstrom-like loyalty experience.

 

 

Inflection Point: Each business has an Inflection Point where the customer has a 60% chance of purchasing again in the next year. This is the point where “loyal behavior” happens. For many of my clients, this happens after a fifth purchase. Carefully analyze when your customers achieve a 60% chance of buying again in the next year. If you want to pursue a traditional loyalty program, this is the audience you want to focus on. If your annual repurchase rate is under 35%, do not expect to identify a large audience with a 60% or greater chance of repurchasing in the next year. Your job changes – you shift your focus from Loyalty to Inflection Points.

 

 

 

 

 

Inflection Points and Loyalty:  An Analysis

 

 

For my long-term client base and readership audience, I preview new products at a reduced price. In this case, I am previewing my “Inflection Points” analysis at the reduced price of $12,000.

 

Long-term clients and my readers get an opportunity to help shape what a future Inflection Points analysis looks like at a significant discount. I will analyze your customer base, identifying the Inflection Points that can be acted upon to create a more loyal customer base. I will analyze purchase transitions … first to second, second to third etc. to learn what Inflection Points exist. I will tell you when a customer becomes “loyal” (i.e. annual repurchase rate is 60% or greater). I will identify any Anniversary Events (i.e. customer purchases every November/December or buys seeds every March). I will thoroughly describe the process the customer takes as the customer goes from a first purchase to a loyal buyer.

 

Some elements of this analysis are similar to the Customer Development work I performed back in 2021.

 

The outcome of this project are “Loyalty Scores” … a model that describes the stage the customer belongs to on the trajectory from first purchase to loyalty to inactive customer. You will learn, for every customer, where the customer is on that journey.

·       Loyal Buyer.

·       Inflection Buyer (just crossed an inflection point).

·       Active Buyer.

·       Anniversary Buyer (about to approach an Anniversary Event – take action!).

·       Lapsed Buyer.

·       Abandoned Buyer (i.e. no longer likely to purchase again).

 

If there are other segments that need to be included, I will include them.

 

I will provide pseudo-code that allows you to score your own file on a weekly basis, so you can act upon what is learned from this project. You should be able to identify an “Inflection Buyer” and take action as soon as the “Inflection Activity” happens.

Inflection Points

In one instance, the customer had a 30% chance of buying again next year, but if the customer accepted merchandise on subscription, the customer had an 80% chance of buying next month via subscription. AOVs went down, product diversity went down, but the customer was considerably more profitable.

That is an Inflection Point.

In another instance, the customer bought for the first time in November 2021, then bought again in December 2022, and bought for a third time in May 2023. The May 2023 purchase was an Inflection Point ... the customer changed behavior ... going from a Christmas shopper to adding a new season.

Every business possesses customers who navigate through Inflection Points. Customer behavior "changes", and changes are generally good when tied to purchases.

If you could list five inflection points that your customers go through, what would they be?