Predicting Buying Behavior: Seven Customers Worth Getting to Know
Retailers, consumer products and services companies, B2B suppliers are all fighting to engage customers and keep them from going elsewhere. And smart marketers know the fastest, highest-ROI route to success is to increase the lifetime value of existing customers.
Understanding what individual customers will buy, how much they will spend and what products they will buy is what we do at Loyalty Builders. Segmenting them by predicted value and risk is also a key step, whether to improve targeting of direct marketing campaigns or to make personalized product recommendations to each customer in an email campaign or browsing an ecommerce site.
Building from the ground up by scoring each customer individually, we group customers into loyalty segments representing their lifecycle stage. Marketing to customers according to their stage makes a difference in the success of marketing strategies and tactics.
Here are the seven lifecycle stages to look for, and what they look like:
High value, low-risk customers. These are the best of the best customers who buy most frequently, most broadly, and spend the most. These customers are usually the best targets for cross-sell items, as they have brand loyalty and numerous transactions. Also, since many Loyalists will make a purchase whether they are marketed to or not, large discounts are not necessary to move these customers. A strategy that some of our Subscribers use is to offer a discount only to Loyalists if they include a cross-sell item in their purchase, thus increasing their total basket size.
Low risk, mid to low-value customers. This group, and Underperformers, are usually the most interesting groups of customers. Nurturers are buying consistently and periodically, since they have a low Risk Score. But they are not high value customers, in that the dollars they spend are low or they may not buy very broadly across categories, or as consistently. Either they are buying at capacity, in which case they will stay where they are, or they are buying other products from competitors. A little testing of some targeted programs could increase the dollars per order for these customers and increase their value.
High value, mid to high-risk customers. These are customers that used to be better customers, but recently have fallen off their expected pattern, either by buying less per order, or buying less frequently, or both. There are many valuable customers in this segment, and reversing their behavior is essential to increasing revenue. Fortunately, these customers typically have an established purchasing history, so making relevant product offers is easy to do. However, these customers may need some additional incentive to get back on track, so deeper discounts are often recommended.
Low value, mid to high-risk customers. These are customers that never really established a significant buying pattern or no longer have one. They make sporadic purchases of low dollar amounts, and they typically buy very narrowly across categories. Other metrics, such as Expected Value, can be used to determine which customers in this group are worth the cost and effort to save vs. which ones are not profitable in the long run. Deep discounts and rich offers are usually required to move these customers, but may not be cost effective.
High risk customers. These are customers that have not made a purchase in a long time and have a high likelihood of defecting. These customers can almost be considered as acquisitions because of the effort involved in regaining their business. Ordering these customers by Value Rank can give a starting point for a campaign. The advantage of these customers over new acquisitions is that they have some purchasing history, and relevant product offers are possible.
These are customers that have made at most two purchases, where a purchase is defined as a unique transaction date with positive revenue. These customers may not yet have a clear loyalty segment, and may be separately targeted from other customers in re-sell or cross-sell campaigns. Most companies have a significant number of 1&2x Buyers and motivating them to a third purchase significantly increases the likelihood of future purchases and significant lifetime value. By analyzing the patterns of 1&2x Buyers along with those that went on to make further purchases, Loyalty Builders enables more effective product recommendations to this group.
An analysis of the transaction data can be used to determine the most appropriate cut-off point, in terms of number of days since a purchase, to designate a customer as “Inactive.” Inactive customers are generally expensive to pursue, although some customers who formerly were high value at some point before going inactive might be worth the effort.