Marketers have different names for them. Some marketers call them “One-and-done” customers. Others call them by more innocuous “1-Time Buyers” phrases. The latter is the literal description of what they are. But I call them “problems” — potential or immediate.
Considering how much marketers spend to acquire any new customer, those one-timers pose real challenges. In the metrics-governed marketing world where ROI means everything, they put marketers in the corner from the beginning.
“Great! Someone just walked in, bought and walked out with merchandise! But will we ever recover the acquisition cost from them? We gave them a fat 20% discount just for showing up!”
In the old days — not too long ago, though — marketers used to plan to break even on new customers on their second or third purchase. Now, no one seems to have that kind of patience in the fast lane, where “everything, all the time” is the norm and the consumers are distracted constantly by competing offers and messages. Hence, many retailers put out an ambitious goal of breaking even at “hello.”
The Customer Acquisition and Retention Challenge
That translates into good news for low-cost acquisition channels, like email or Facebook, and bad news for relatively expensive channels, like direct marketing or traditional media. Regardless of channel usage, however, marketers must be smart about both retention and acquisition. In other words, they must stop the bleeding and pump in new blood at the same time.
I often see that one-time buyers make up over 80% of the customer base of a retailer. Even when we go back four to five years and count every transaction, the lowest figure that I’ve seen hovers around 60% or so.
That means, even in an unusually decent case, more than half of new customers do not come back. Pretty scary stuff.
What Marketers Can Do to Retain Customers
If that figure goes over 80%, I recommend starting with a more refined acquisition strategy. Simply because without new blood coming in, there won’t be much to talk about in the near future.
The first thing that I would ask is how aggressive the marketers want to be in terms of channel usage. I’ve seen bold ones who go the multichannel route with varying degrees of cost-friendliness, and conservative ones who would stick only with cheap and measurable channels.
To Retain, Acquire Customers Intelligently
Regardless of the degree of aggressiveness, the first concern is if they have been targeting the “right” prospects.
Years of experience in data and analytics business taught me that not all customers are created equal. You may have multiple pockets (or segments) of vastly different types of customers in your base, starting with the most valuable customers to downright barnacles who are professional bargain-seekers with no chance of being a loyal customer.
Going after the right kind of customers during the acquisition stage will curb the one-time buyer problem.
Whether you want to toss a bunch target samples to Facebook, go to third-party data vendors or join a co-op for modeled prospects, I strongly suggest marketers define the ideal target for them first.
- When you say “valuable,” what does that really mean?
- In terms of frequency, is that measured by the number of transactions or days between transactions?
- In terms of dollars, is that in total customer value or average spending level per transactions?
There are many ways to do it, and what I am suggesting is to try them as many as you can — when it comes to target definitions — and keep testing them. Targeting requires adjustment of the gunsight, with many rounds of practice shots.
One of the tricks I’ve learned while being a vendor all of my life is that you never try one method, one channel or one type of target. Because, if that “one” thing fails, you’ll be fired. Simple as that. But if you try three to four different combinations of target definitions and methodologies, then you have a better fighting chance to stay in the game, thanks to cumulative learning. After all, 1:1 marketing is all about learning from the past endeavors, isn’t it?
Here’s What I Recommend
So, I recommend trying different types of targeting (i.e., target definition of any “look-alike” modeling or simple selects) in different focus areas. For example:
- Behavioral Targeting: Target after you your audience’s best behavior, however you define them. I would use separate measures, such as transaction frequency and dollar amount, as responsiveness is often inversely related to sheer value (e.g., an infrequent visitor who spends a lot in one transaction).
- Demographic Targeting: What do those most valuable customers look like? What demographic clusters do they belong to, and what are their key demographic profiles? This type of targeting may not be as precise as behavioral targeting, but basic segmentation often provides a common language among disparate players in the acquisition play, including copywriters who would come up with relevant messages for each segment. Commonly defined clusters also open doors toward new target areas (e.g., targeting Millennials when an existing target base is mostly in older age segments).
- Regional Targeting: It is not unusual to see a high concentration of customers around physical store locations, even for online traffic. Test in and out of traditional footprints for an effective expansion strategy by channel.
- Product Targeting: Depending on the product lines, you may be dealing with vastly different customer profiles. Customer profile by high-level product category is important, as it is not a good idea to have a one-size-fits-all type of targeting when you carry distinct lines of products. The average of multiple types of customers is really nothing; there are no such things as “average” customers, when they are separated in dichotomous universes.
There are many ways to slice and dice this, but the important thing is to let the ideas fly within reason (i.e., don’t overdo it, either). And at some point, you will run out of options just using RFM segments, so plan to dive into look-alike models; many list vendors and social media publishers offer modeling, either in forms of traditional models or machine learning. But even the most cutting-edge targeting engines won’t work if the target is way off. Attracting barnacles is just one example.
Now Retain Those Customers
Then I would turn the attention to the retention side to curb this one-time buyer problem. But this time, I suggest marketers look at it not just from the segment/targeting point of view, but from the timeline point of view, as well.