Series 2, Part 7: A Case Study in Customer Retention

My previous post validated two facts about new retail customers in our point-of-sale database. First, they are very significant, accounting for 31 to 42 percent of a typical retailer’s customers each year. Second, they are extremely valuable. Below, I'll examine how well a particular retailer is performing with respect to pertaining new customers. 

A case study in retaining new customers

One of our participating pool retailers engaged in a case study of its new customers along with an assessment of how well it was doing at retaining them over time. During our discussions, this retailer told us he thought many new customers were simply “one-time buyers” and were not worth pursuing (although they were included in the database for bulk emails).   

There are some issues with this mindset that I will address in the future, but for the purpose of this case study, one-time buyers were excluded.  We specifically identified 1,897 new aftermarket customers in 2010 and screened them to be sure they had more than one purchase transaction in that year. Then we tracked the purchases of those same customers over the next three years (2011-2013). Chart 2-7 shows the outcome.

 Blog 2 7 Chart V1

The results

Chart 2-7 indicates that after three years, this company retained only 40 percent of its 2010 new customers (not counting one-time buyers) while 60 percent of its new customers defected over this time. Starting with 1,897 new customers in 2010, only 762 were still buying from this retailer in 2013. We also tracked annual sales from these customers, which dropped 47 percent from $344,000 in 2010 to only $183,000 in 2013. Wow! This is a big problem.

The not-so-obvious benefit 

So why did these customers leave and where did they go? Which ones were worth retaining? Can any of them be recovered? What will it take? 
While we don’t have the answers yet, we now have identified these new customers that have defected each year. So we can talk to them and find the answers. And that is exactly what this retailer is doing with our help. 
Better still, the insight gained can be applied to reducing future defection and winning back lost customers. This leads to a little known secret: The biggest potential revenue gains are not from your best customers. Companies that look to their best customers to grow revenue are usually looking in the wrong place. Stay tuned to learn more. 

Your turn

Does your company know how many new customers it lost last year? If you had a list of new customers in 2012 that defected from your company in 2013, what would you do with it? How might you use the list to help your business? Would it be valuable to have help with understanding defection and improving retention of new customers?
Read the previous post in this series: The Impact of New Customers
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