Series 2, Part 9: Identifying Leaks in Your New Customer Pipeline

My last few posts highlighted our research findings regarding new customer retention. Unfortunately, one-time buyers and other lost customers are proving to be a problem that needs retailer attention. If you think of new customers entering a pipeline as in the chart below, then our research points out some substantial leaks. 

The case study in Figure 2-9 was based on a sample of 2,888 new retail customers. We selected 2010 as the base year in order to track customer purchases over time.

Blog 2 9 Chart V1

The ResultsOf the 2,888 new customers, 35 percent (991) were one-time buyers who did not make a second purchase. Although another 27 percent (786) bought at least another time during 2010, they also did not buy anything in 2011. When all was said and done, only 38 percent (1,111) of these new 2010 customers were retained after a single year! Wow! That’s some pretty significant leakage — 62 percent or 1,777 new customers were lost after only one year.  

A follow-up analysis identified 56 percent (987) of those lost as pool chemical purchasing customers. Double wow! In a time when retailers are fighting to grow their sales against competition like the Internet, reducing this leakage can provide a very important source of revenue.

Fighting the status quoIt's likely unsurprising to learn that none the participating retailers had a process in place to identify, measure and prevent lost customers, nor did they have a process to win back lost customers. I believe that’s because it's difficult for a busy retailer to conceptualize and set up the systems to use their point of sale data to turn analysis of customer purchases into business opportunities. This is also one of the reasons we undertook this research and are working on solutions. 

However, because these retailers were not measuring customer defection, they were not really alarmed by the thought that they might be losing such a large percentage of their new customers. After all, it is unpleasant to study failures such as lost customers, and trying to analyze it can be pretty uncomfortable. As a result, many retailers tend to rationalize that defectors are just part of the status quo that must be accepted. 

An unintended consequence

Direct marketing campaigns are successful when the right offer is made to the right customer at the right time (the three “rights”). But all customers are not the same; they have different needs based on where they are in the customer lifecycle. The problem is that most dealers do not send direct marketing offers based on lifecycle segmentation. 

For example, lost customers are frequently included in the same mailing database and given the same offers as all other customers. So the right offer or time for one customer is likely the wrong offer or time for another. This is often referred to as the “spray and pray” technique of direct marketing — spray the same message out to everyone in your database and pray that it will appeal to at least a few. 

Besides delivering unsatisfactory results, there is an unintended consequence. When customers see you recommending products to them in which they have no interest, your company does not get positive strokes. When you make an irrelevant offer and they think you should know better, your company takes even more hits. Stay tuned for a better way to market to your customers. 

Your turn

How do you track new customers and do you attempt to identify leaks? What are you doing to improve new customer retention and win back lost customers? Is it working? How do you know?  Are your direct marketing campaigns made up of “one size fits all” communications or can you share a way that has worked better for you?

See the previous post in this series: One-Time Buyers – Problem or Opportunity?

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