In 1999, the marketing world was in the midst of change. A few visionaries had already seen the future and grabbed for the Internet golden ring. Amazon was heading towards the World Wide Web Hall of Fame while Barnes & Noble was struggling to find the sweet spot between ecommerce and bricks & mortar.
A niche retailer in Atlanta caught the Internet wave early in 1996. They used it to quickly expand their business. New customer acquisition was at an all time high. Initial average orders were 22% higher than normal. Promotions were attracting people from different demographics. Everything was wonderful except for the decreasing bottom line. Their profits were declining as sales were increasing.
A review of the RFM (recency, frequency, monetary value) analysis didn't show any oddities. There weren't any service issues that would affect profitability or loyalty. Product and marketing costs were holding steady. None of the normal issues that affect profitability were present. We had to dig deeper.
Analyzing acquisition and retention gave us the first glimpse of the problem. New customers stopped buying after one or two purchases. Typically, the normal life span for a new customer was approximately ten years for this company. Now, two months was a long life for a growing segment of the database.
The normal attrition suspects were rounded up and eliminated. Prices hadn't increased. Service was top notch. Marketing was spot on. The only obvious candidate was increased competition from the Internet.
Not willing to accept the obvious as the right answer, we continued to dig and found some similarities between the people who stopped buying:
- Their first orders were placed on the Internet
- They had never received a catalog prior to the first order
- 67% of the orders were shipped to alternate addresses
- 43% of the orders were seasonal
It was our first formal introduction to hit-&-run customers. They are people who place orders but don't match your customer profile. The items they order may be for gifts or a one-time special event, but this market segment will never become life-long customers. The best customer relationship management strategy won't have an effect.
There have always been customers like this, but prior to the Internet, they were too few to have a significant effect on profitability. Companies were protected from this phenomenon because it wasn't easy for people outside their target market to find them. Google changed that.
The easy access to companies around the world has increased the number of hit-&-run shoppers for every company with an Internet presence. Eventually, they transition out of the marketing cycle, but every marketing dollar invested in customers who have completed there lifespan is wasted. The sooner you can identify them, the less they affect your bottom line.
If your customer relationship management (CRM) strategy isn't working as well as it should or used to, you most likely have a hit-&-run customer issue. It is impossible for CRM to work with people who have zero interest in your products or services. The first step to finding the answer is to conduct a customer acquisition and retention audit. It shows you how well your acquired customers are retained.
Note: Everything you need for a comprehensive customer acquisition and retention audit is in the Customer Loyalty Toolkit. All you have to add is the data.