To help retailers improve their businesses through customer retention, the first five posts in the series have covered a lot of ground. Here is a “what to remember” list to review before going further:
- Customer retention is measured as the percentage of customers that bought from you last year and are still buying from you in the current year. It can be measured using a retailer’s point of sale (POS) data. Its “opposite” is called customer defection. For example, 80 percent customer retention equals 20 percent customer defection.
- Our research of dealer POS data sought to provide the first industry benchmark for customer retention. The results are in: Each year the specialty pool and spa retailers in our study retained an average of only 57 percent of their customers from the previous year. That means an average of 43 percent of their customers defected each year.
- Successful customer retention starts with the first contact an organization has with a customer and continues throughout the entire life of the relationship. This concept was introduced in the last article with the Customer Lifecycle Chart, shown again below.
- Segmenting and timing direct marketing communications based on where customers are in their lifecycle journey is a proven method to improve retention.
As this series continues, I will go through the lifecycle stages using actual pool retail transactions from our proprietary database to illustrate problems and opportunities. Let’s start with new customers.
The role of new customers
New customers have been likened to the start of a marriage. The sale merely consummates the courtship, and then the marriage begins. How long it will last depends on how well the relationship is managed by the seller. All customers were once new, so it stands to reason that they are worthy of special attention.
The goal is pretty simple: get to the second sale, then the third and so on for years to come. It’s also straightforward: the longer a customer stays with a company, the more that customer is worth. Good long-standing customers are worth so much that in some industries, reducing new customer defections by as little as five points can double profits.
New customer benchmark
So far there has been no information available about the number of new retail aftermarket customers each year. We were curious: Are there enough of these customers to make segmenting them worthwhile?
Using our proprietary database, we defined new customers as those who made a purchase in 2012 but not in 2011. The chart below (2-6B) provides the results as well as another new industry benchmark. We found that for the companies in our database, an average of 42 percent of active customers each year were new. That is clearly a significant number worthy of attention. And as you can see from the chart, even the lowest number was significant at 31 percent.
Are they worth it?
When analyzing a group of retailers, we found that the average new customer spent between $101 and $242 in 2012 alone. Many spent more. One typical retailer had new customer sales of $360,000 in 2012. It is safe to say that for aftermarket products in the pool and spa retail industry, retaining new customers should definitely be a top priority.
Unfortunately, my experience is that very few retailers are measuring new customer retention and are sufficiently focused on turning them into loyal customers through targeted communications and selling programs. Stay tuned as I dive into that next.
Your turn
How many new customers do you create each year? How do you measure them? What programs do you have to track and retain new customers? How successful are you at retaining new customers? What would your customers say? Where do you need help?
