Customer Retention: How to improve it utilizing Customer Behavior Analytics

Understanding how often your customers repurchase items can yield large paybacks in terms of sales and profits 

Many companies are not aware they are sitting on a gold mine of sales and profits and all they have to do is look for it.  Over the years I have analyzed customer purchase behaviors and in many instances found opportunity to capture more sales, improve retention rate all while increasing profits.  Does this sound too good to be true?  The key to identifying purchase behavior that could be cultivated into one of the most profitable marketing programs is to look at item sales across time to identify if the same customer purchases the same item multiple times.  The easiest method of identifying such behavior is to list item by customer number who purchased.  If it is observed that over twenty percent of your items are repeat purchases from the same customer, you’ve struck gold.

Many companies have this behavior hidden in their transaction data and are not aware of its value.  I have found such behavior at both B2B and B2C companies.  The majority of this buying behavior can be associated with products that are “consumed” or regularly replaced.  Some good examples of consumable products include paper supplies, business forms, annual replacement items, nutritional supplements, filters, equipment that fails after use and numerous other examples.  If in doubt, the basic analysis is straight forward and should be done, it only takes a small percentage of your items to generate impressive ROI on the resulting program.

So let’s say you found your product portfolio contains consumable products, now what?  The next step is to find what the minimum time interval is between purchases.  For illustration purposes, you find that the average time between purchases is nine months.   The key is to contact the customer prior to the average replacement window and secure the reorder as opposed to allowing the customer an opportunity to explore alternative sources for the product.  

In this example, I will use some actual data from a B2B marketer I worked with who sold supplies which have a clear replacement cycle as the products ultimately fail with repeated use.  In this study there are 4,100 customers who purchased one (or more) of seven similar items used to deliver services to their customer.  These customers had purchased one of the items within a window of a minimum of 6 months and a maximum of 24 months ago.  For this test 2,950 will receive a special communication regarding the item replacement while another 1,150 are held out as a control group to measure the incremental lift.  

The communication’s content should be personalized to the recipient such that the purpose and action is clear.  For this test the communication contains a picture of the product purchased, date of purchase and a brief explanation that the product’s useful life may soon expire, and photos of products with various component failures are shown to help the customer evaluate the remaining life of the item.  The customer is urged to examine the product and if any signs of potential failure are found, a replacement should be ordered immediately.   The communication was sent via snail mail, but the technology has advanced quickly and this customized communication can be sent via the customers preferred channel of communication.  The control group continued to receive all the regular communication except for this replacement notification.

The performance of the test and control groups is documented below.

	Control - Total Qty 1,150			Test - Total Qty 2,950
Product	Data	Total		Data	Total
Category	Buyers	103		Buyers	330
Performance	Sales	$19,359		Sales	$54,460
	Sales per Member	$16.85		Sales per Member	$18.45
	Response	8.96%		Response	11.18%
				Sales Increase	9.5%
				Response Increase	24.7%
SKU	Data	Total		Data	Total
Performance	Buyers	48		Buyers	207
	Sales	$5,109		Sales	$20,185
	Sales per Member	$4.45		Sales per Member	$6.84
	Response	4.18%		Response	7.01%
				Sales Increase	53.8%
				Response Increase	67.9%
Overall	Data	Total		Data	Total
Performance	Buyers	243		Buyers	762
	Sales	$90,607		Sales	$338,106
	Sales per Member	$78.86		Sales per Member	$114.53
	Response	21.15%		Response	25.81%
				Sales Increase	45.2%
				Response Increase	22.1%

Not only did the effort result in elevated levels of customers reordering the items included in the communication, but additional items in the product category and products outside of the category were purchased too.  Overall retention was improved by 22% and with an increase of average order value sales increased by an average of 45%.  These are actual results achieved, not all programs will have such strong results, but I have always seen this program deliver acceptable results when implemented as outlined.  For some businesses that have a highly consumable product portfolio this type of program typically becomes the mainstay of top line sales and bottom line profits.