... for the second sale
It’s the end of the year and you’re probably tabulating the first-time buyer count—how many customers have made their very first purchase this year. And you’re also looking at how many first-time buyers you have overall—customers who’ve only made one purchase in their lifetime.
To keep the customer file strong and profitable, these first-time buyers need to buy again next year. But, next year is just days away. What can you do to influence a second purchase?
Begin With RFM
Planning how to influence the second sale should be part of your overall annual contact strategy. The annual contact strategy is the blueprint that identifies which segment of the customer file is mailed, how often and with what offer.
It usually begins with segmenting your customer file. Segmenting generally is achieved with recency, frequency and monetary value (RFM). Customers on your database are uniquely placed into categories based on their most recent order [R] combined with their frequency of purchases [F] and their average monetary spend [M].
In the RFM segmentation example provided on page 22, you can see that in the year 2004, there are 138,000 first-time buyers who made only one purchase in their lifetime. You also can see that 138,000 is a subset of the 785,624 total one-time buyers. The immediate goal is to ensure the 138,000 first-time buyers from 2004 make a second purchase in 2005—building on their recent experience with your company. Then it’s important to influence a second purchase from customers who bought from you nearly two, three or four years ago (337,024, 255,000 and 55,600 respectively).
One reason you’ll want to use an RFM report is to monitor the shifts in purchase behavior. This way, you can track progress within each customer segment, such as how many of the 2004 first-time buyers have made a second purchase.
Begin with what you know. Review transactions of customers who have made a second purchase. Look at the products purchased, the merchandise category, the price point, the time of year, responsiveness to promotions, the types of mailings and e-mails—everything. Find which contacts and offers work best and begin developing the 2005 contact strategy around the successful elements.
How many of these second-purchase techniques have worked for you? One technique used to incentivize repeat purchases is to include a special bounce-back in the outbound package for first-time buyers. Use your order entry system to identify first-time buyers (usually a “new record” indicator is evident) and include a welcome letter, a first-time buyer survey, a sale catalog, another catalog with a thank you outer cover wrap or other motivators, to immediately influence a second purchase. If your order entry system is able to identify an order placed from your Web site, you can tailor the package inserts to specifically address channel shoppers.
With the goal of converting a second purchase, include an incentive with a sense of urgency—use statements such as, “Take advantage of this offer before [a specific date]” or, “Buy from this catalog and receive a $20 gift certificate.”
Immediately communicating with first-time buyers is a strategy that often yields strong results. If a new customer does not convert to a second-time buyer with the in-the-box effort, there are plenty of other strategies. The following is a sampling of ideas and proven techniques that work for new-to-file buyers as well as inactive buyers who purchased only once in their lifetime (such as the RFM example with 337,024 one-time buyers whose last purchase was in 2003.)
The creative team has to design a catalog cover, so why not lay out the cover to accommodate a black plate change? When the marketing team and the creative team work together to influence sales, the options seem endless. For example, if the cover design includes a preprinted dot whack (the attention-getting, bright-colored circle on the cover with text) the marketing team can identify first-time buyer segments and use different promotions for different segment attributes. Maybe this is a discount, a gift with purchase or a welcome back message.
Versioning also can include completely different creative. Perhaps marketing has completed its analysis of first-time buyers and found customers whose first purchase was a solid-gold widget typically make a subsequent purchase of pink flamingo lawn ornaments. The creative team can develop a cover version featuring the lawn ornaments. You may find customers who buy running shoes typically buy running shorts; or customers who buy towels subsequently buy pillowcases. Analysis helps guide the product selection on the front cover. It is important to work with the creative team as they begin to lay out the catalog pages to ensure versioning is incorporated into the creative strategy—not a last minute, “just make it fit” idea.
Segment by Specific Price Points
Customers with only one purchase in their history have specific data that can be evaluated and then segmented for different marketing opportunities. One example is segmenting by specific price points. You can even use items that were bought at a discount or sale price; make sure these first-time buyers receive a sale catalog or promotional e-mail.
This strategy capitalizes on a prior buying pattern. With price sensitivity demonstrated, promotional pricing, two-for-one specials or value-based pricing on the catalog cover can be very successful.
Analysis is the key to uncovering the best strategies. Sometimes the analysis has to be done externally. Statistical modeling to identify customers who are most likely to make a purchase can be outsourced to a database vendor.
If statistical analysis isn’t an option, a different type of analysis is used during the merge/purge process. Prior to the merge/purge, identify one-time buyers by segment and place these names higher in the merge priority than outside rental lists. Once the merge/purge is run, review the duplicates (also known as “hits”) to the outside rental lists. In this way you can recognize recent buying activity and choose to mail the hits from the one-time buyer segment. Recent buying activity is a predictor of subsequent buying behavior, meaning the hits are more likely to purchase than non-hits.
Start now with a year-end RFM report. Benchmark first-time buyer percentages and set goals to decrease the percentage of one-time buyers. You should try to achieve a 50-percent rebuy rate of the 12-month first-time buyers. To illustrate the example, refer to the RFM report noting 138,000 one-time buyers in 2004. Setting a 50-percent rebuy rate means 69,000 will be converted to a second purchase. Monitor the progress monthly and incorporate successful programs and strategies throughout the year.
Acquiring customers is one of the most expensive parts of doing business. Focusing the marketing, merchandising and creative effort to convert these first-time buyers contributes to a profitable lifetime value.
Gina Valentino is vice president and general manager of J. Schmid & Assoc., Shawnee Mission, Kan. You can reach her by e-mail at firstname.lastname@example.org.