We spend a lot of time talking about Customer Lifetime Value, which, don’t get me wrong is key in growing customer value and creating loyal customers; however, today I want to talk more about consumer loyalty as it pertains to customer count and how to ensure the channels you’ve doubled down on are producing the right types of buyers.
Myth 1: As long as my customer count is going up, my business is growing.
It’s tempting to look at your numbers on a monthly, quarterly, or yearly basis and say, as long as the number of customers in my database is going up, then we’re on the right track. While increasing your number of customers is important, you’re missing a key piece. To get a full view of the health of your business, it’s important to segment your customers into one-time, repeat, and loyal customers, and look at increases, or decreases, in the number of customers based on these segments over time.
Why is this retail analytic important? Well, if you have a large influx of new customers that never come back to purchase again, you’re losing money. After all, it costs 6-7x more to acquire a new customer than keep an old one. Ideally you want to see an increase in customers (overall) with an increase in repeat and loyal customers, and either a steady or slightly increasing one-time segment.
This image is a great example of what you want to see when looking at customer count by segment over a certain timeframe. This retailer, Market & Main, started the year with 80% of their customer base consisting of one-time customers, fast forward 5 months and they’ve seen significant increases in repeat and loyal customers with a decrease in one-time customers. Let’s take this one step further, if we look at the AOV for each of the segments (see graph below), you can see there is a large difference in average order value from 1x to 2x and loyal customers, which also impacts customer lifetime value. To put this in perspective, Market & Main sees a 99% increase in average order value from the first to second purchase, and a 24% increase in average order value from second to third purchase, meaning it’s imperative to their business to ensure customers come back to make a second, and then a third purchase.
Myth 2: I should dump money into the acquisition channel that brings in the most customers.
This is a half-truth. Yes, putting money where your customers are is very important; however, retailers should hone in on the types of customers being brought in by each channel. For example, looking at the below chart you would immediately say, google, second+order, and Windsor Circle Automator are the top acquisition sources, and we should cut nextag, shoppingdotcom, and amazon.
But, again, you’re leaving out a key metric - frequency (number of purchases per customer). Let’s take a look at a graph that shows the number of customers by frequency by acquisition channel.
In this case, the top three channels noted in the first graph (windsor circle automator, google, and second+order) are still outperforming the other channels in terms of the number of repeat buyers who are sourced from the channel. However, you can see there’s some work to do in order to boost the number of customers who move from the second purchase to the third purchase to fourth purchase.
On the tail end, you can see that shoppingdotcom, amazon, and nextag have the lowest number of customers; however, Market & Main is seeing higher conversions across the board from these particular channels. Using these two graphs together, retailers can start to piece together a strategy to expound on what’s working and tackle the things that could use some work.
Based on this data, I would recommend thinking about how to capitalize on acquisition through the smaller channels that are seeing higher retention rates, and work on converting more customers in the high quantity channels where Market & Main is seeing a drop off after the second purchase.
There are a staggering number of retail analytics for marketers to hone in on at any given time. The goal of this blog is to help retailers take some of the data at their fingertips and uncover the true meaning and next steps behind the numerous graphs and charts available.
If you don’t have a way to find this data, think about setting up a free trial of Windsor Circle - you’ll get access to the graphs you saw above as well as a slew of other data points, and it’s free!