A common challenge B2C marketers face is how to turn newly acquired customers into high-value loyalists. For many, the go-to strategy to secure that second and third purchase is to offer deals and discounts. However, training your customers to wait for discounts negatively affects your average order value (AOV) and customer lifetime value (CLV). The fact is, some customers are more inclined to quickly become loyal to a brand, while others never will. What if you could know which customers are most likely to be high-value over the long run based solely on the details of their first purchase? Then you could target your win-back campaigns to attract THOSE customers. Well, you can! Examining the first-order attributes of customers that have gone on to be valuable will provide the clues you need to find your next most valuable customers. Here’s a step-by-step guide to help you identify which customers to focus on. Adjust it as you need to for your own tools and marketing plans.
Step 1: Identify Your VIP Group
The target customer group should have had enough time to return for a second purchase and must be big enough to offer sufficient statistics. These parameters depend on your business. In our example below, we selected customers that first bought between 13 and 24 months ago.
Step 2: Define the Average KPIs for the Group
Here are the KPIs we recommend and the sample metrics for our group:
- Number of customers in your cohort 11 million customers
- Number of customers in your cohort who made a second or third order 557,000 customers
- Average CLV of the customers in your cohort that made a second or third order (excluding the first order value) $427
Based on this information, our benchmarks that indicate high-value customer segments are:
- Average CLV (excluding first order): > $427
- Conversion rate to second order (number who bought more than once / total number in your cohort): > 50%
Step 3: Sort by First-Order Attributes
For the group you’ve selected, review the attributes you collected about their first purchase and use them to segment the group members. We suggest using product category (e.g. shirts, dresses), sales channel (e.g. online, in-store) and revenue (bucketed into ~10 segments with similar customer counts). *Note: This method can potentially split your VIP group into hundreds of segments, and that's OK. We want to get granular at this stage, which is why we recommend you start with a large group.
Step 4: Define the Average KPIs for Each Segment
To calculate these metrics, simply repeat the calculations from step 2 for each segment and select those that meet the conditions you identified for high-value segments. In our example, you want those with an average CLV (excluding the first order) that’s greater than $427 and
have a conversion rate to a second order of greater than 50%. Then, sort the surviving segments by conversion rate with the highest incremental CLV at the top. This step might sound a bit complicated, so let’s look at an example. The table below includes six hypothetical segments and the product category, sales channel and revenue for their first orders, as well as the accompanying metrics we just calculated in step 4.
Segments 2, 3 and 5 are the best candidates because they exceed the benchmark incremental CLV and conversion rate from step 2, and they also have a high enough volume of customers. Where should you start? Segment 3, which has the highest incremental CLV and customer volume. Use this segment for your pilot campaign. The remaining three each under-performs in a different way, so don’t devote much of your time to these – at least not at first. You might argue that with a good enough incentive you could increase the native conversion of segment 6. That would be an interesting experiment to run in your free time.
Step 5: Build the Campaigns
You now have a list of first-order attributes that allow you to identify potential high-value customers immediately after they’ve made their first purchase. And you can build campaigns to attract new customers who exhibit this behavior and then encourage them to buy a second time using targeted messaging that includes relevant recommendations based on their initial purchase.
Wrapping it Up
Such a calculated approach to customer segmentation may take some getting used to, but the time spent can really pay off in the long run. You’re already gathering numerous pieces of data on your customers. So put it to good use and help your team zero in on those loyal, high-value customers who can keep your marketing plan moving in the right direction. To learn more about AgilOne, visit our website