Every single customer in your store behaves differently. Perhaps Patrick comes in and buys from you once a week. And Ana may have a slower purchasing rate, buying only once every 2 months. This, however, doesn’t mean Ana isn’t faithful to your brand, and it doesn’t mean she’s a bad customer either. She may be even love your brand more than Patrick and be a more devoted brand advocate, she just has different needs than Patrick.
Why is it crucial to understand there are different purchase rates?
Well, if you see Patrick not buying for a month, you definitely have a reason to worry. You may want to offer him a special discount, trying to convince him to come back into your arms.
However, if you see Ana not buying for a month, you have no reason to worry. She doesn’t need the discount, ’cause she would have bought full price anyways in a few weeks. If you gave her a discount now, you wouldn’t be convincing her to buy when she wasn’t sure, you just anticipated an order she was going to place anyways. And you would also lose money, because absorbing the discount, you’d receive less than what Ana was willing to pay you.
What does this even mean?
If you offer everyone discounts, without taking into account their purchasing behaviors, you’re giving the discount to people who would have paid the full price. This means that for a bunch of people, who were willing to pay a higher price, you just cut your profit, losing every extra dollar you would have made if they had bought without a discount. The crucial part here is THEY WOULD HAVE BOUGHT IT ANYWAYS, PAYING FULL PRICE.
If you don’t offer anyone a discount, you’re potentially losing money as well: if you have a very loyal customer, who is worth hundreds of dollars to your store, who is slowly walking away, you have a chance to stop him. If you pamper him, give him this special treatment, and offer him things he wants or needs, at a more convenient price, you may get him back, and convince him to keep on spending his money at your store, and nowhere else. For a customer who brings in as much revenue as Patrick, it’s a very good deal to even lose some money in one of transactions, if this will convince him to stick to your store, ’cause he will bring you much more revenue in the long-term than what the discount you offered him costed to you.
How can we tell between active customers and those at risk?
Every new customer is considered an active customer.
We use 4 advanced algorithms to estimate every single customer’s future behavior. We take into account every customer’s own historical data, but also all of your customers’ data, to identify patterns that wouldn’t be visible only analyzing every user separately.
We then examine every customer’s actual behavior against his predicted future behavior, and see if there are important deviations. If there are, we mark the customer as ‘at risk’, and we update his purchasing behavior.
If the customer returns to make more purchases, we adjust his purchasing behavior and estimated future value, and the cycle keeps going.
Knowing every customer’s purchasing habits can be of enormous advantage to you, allowing you to regain customers who were about to walk out the door, and bring both them and their money back in.
It also helps you distinguish the cases where it is really necessary to cut your profit in the short term a little bit, in order to score bigger gains in the long run, from the cases where it’s not necessary for you to lose one single penny offering a discount.
This is why we have developed advanced models to help you know exactly when and how to reach your customers. If you want to learn more about how we do it, please refer to this article. If instead you want to know more about what to do with your CLV, refer to this article.