Getting to the Second Sale

Hand Holding Small We Love Customer Signage

Hand Holding Small We Love Customer Signage

It happens so often there’s even a catch phrase. “One and done” is what marketers call customers who make a single purchase and don’t return for more. If a substantial number of your customers are one-time buyers, you have a serious business problem.

Very few companies make enough margin dollars from a first purchase to cover acquisition cost, so every one-time buyer is a hit to profit. Even if your company does profit from the first sale, having a large one-time population means missing out on revenue from follow-on sales.

The size of the one-time buyer problem is staggering. We recently looked at customer data from more than 50 companies, from SMB to enterprise, from B2C to B2B, from bricks-and-mortar to totally ecommerce. On average, one-time buyers was a shocking 46% of the customer population. B2B distributors did best turning one-time buyers into repeat customers, often keeping one-time buyers below 10%. B2C retailers with a brick-and-mortar presence posted numbers ranging from 30% to 60%. Web-only companies were the worst, with numbers often above 80%.

Addicted to acquisition

We call companies with big one-time-buyer numbers “addicted to acquisition.” Most of their revenue comes from one-time buyers, and like sharks needing to keep swimming to live, if these companies don’t keep acquiring new customers, they will quickly fail. The Internet is a vicious commoditizer, with many customers buying on price alone. Customer loyalty is a foreign concept to them.

The good news is that one-time buyers also represent a wonderful opportunity.  Each one-timer is someone about whom you have important information: their address and what they purchased from you. You don’t have to buy their contact information from a list broker. You have some idea of their interests based on that single purchase.

Here’s this month’s true confession: Like many mathematical marketers who use customer analytics, for too long I didn’t believe there was enough information to make predictions about future buying behavior.  I couldn’t have been more wrong! Successful one-time buyer programs should be an important component of your direct marketing mix.

Customer analytics save the day

An effective one-time buyer program requires three kinds of data. First, you need to know which one-time buyers are more likely to make a repeat purchase. Second, for each individual customer, you need to determine which products and services will be most appealing. Often, it’s not what the customer first bought. Finally, you should decide when the best time to make contact again is. Personally, I groan when a hotel where I stayed last week on vacation sends me an offer to come back next week. What a waste of its marketing budget.

Let’s start with the easiest piece, when to make an offer. Look at all of your customers who have made multiple purchases and determine the average interorder time — the time between purchases. For first-time purchasers, until their recency reaches the midpoint of the average interorder time, their probability of making that second purchase is over 50%. Put them into your marketing communications stream, but don’t make any special offers for that second purchase until their recency passes that midpoint.  Then set up a window, say for 100 days after the midpoint. When a customer’s recency falls into that window, they get a good offer to buy again.

Not all one-time buyers are equal. By examining the first purchase details of customers who go on to make a second purchase, you can identify the characteristics that are likely to lead to a second sale. For example, in one customer population we recently studied, 25% of the customers whose initial purchase exceeded a certain threshold came back again. If that purchase was from a particular product category as well, 40% returned to buy. If that first purchase was $100 or more over that threshold and included items from two different product categories, fully two thirds of those customers became repeat purchasers.  Studies like this clearly identify the subset of first-time buyers who are more likely to make a second purchase.

What to offer

The final piece of the one-time-buyer puzzle is figuring out what the offer should be. Our experience shows that individualizing the offer, featuring specific products that will be of interest to the targeted customers, works much better than merely offering a discount. For customers with a single transaction, you will need to rely on a product affinities table—for a given set of products, what are the likely subsequent products purchased. If you don’t already have a product affinities table, build one right away. It will help all of your direct marketing, not just that part targeting one-time buyers.

With criteria on which customers to target, what to offer them, and when to communicate, you’re ready to run a systematic, continuing one-time buyer campaign.  Each month, different one-timers will have recencies that fall into your target window. The entire process can be automated.

Don’t expect these campaigns to produce at the same rate as those to better customers. A 1% to 2% response rate is typical. The media you use should support this rate of return when you consider margin dollars and media cost.  But getting this set of customers solidly into your existing customer population will be a big win for your company. You can turn “one and done” into “one and won.”

Piece originally featured in Direct Marketing News.

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