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+++ S P E C I A L R E P O R T +++
"Save Money Marketing to One-Time Buyers"
Jim Novo, Author and Customer Retention Guru
http://www.jimnovo.com

July 30, 2001
Ah, the One-Time buyer, my companion (but not a friend) all these many years of database marketing. You have them, right? Maybe 40%, 50%, even 60% of the customer base? Seems like such a waste. You went out and spent a bunch of money to reel these people in, only to find they buy or visit once and that was it. Then you pound them with all kinds of targeted promotions and they still don't buy or visit. Your boss (if you have one) is pulling out all his/her hair, and is starting on yours. Convert those people to multi-buyers, darn it!

Not going to happen, folks, at least not at a rate that will make it profitable for you to spend a lot of time and money on it. Years of direct marketing history and testing come to one conclusion - it's just not worth it. The One-Time buyer problem is tough to solve in the catalog world, but even tougher in the interactive world. 

In fact, many database marketing companies don't even call One-Time buyers customers, because it's highly likely they are not customers any longer. They’re like tourists “just passing through”, and most will never become real customers. If you are going to spend precious marketing dollars where you get the highest payback, there are targets much more profitable than One-Time buyers to address. 

Does that mean all is lost in One-Time buyer land? No. The solution is to create less of them. One-Time buyers are created by the circumstances surrounding their first purchase (or visit), and if you minimize the types of activity known to generate One-Time buyers, you'll save a ton of money over time. 

What do I mean by circumstances? The media used to bring in the customer and the offer usually play a big role, as does the product itself. Between these three variables, you capture 80% of the forces creating One-Time buyers. Some products just naturally encourage One-Time purchase, as do certain kinds of offers and types of media. Your task is to find out which combinations create a high percentage of One-Time buyers, and minimize the use of these combinations.

Gather up all your One-Time buyers, and see if you can find any commonality in them. Do the majority of them come from one particular media or offer, or have they bought the same items or categories of items? If so, then you can reduce your reliance on this media or item and put the money you save into media or items you know tend to generate multi-buyers. By going through this process, you will automatically raise the long-term ROI of all your marketing and merchandising.

For example, let's say you feature your most popular item on your home page. What if this item generates 90% One-Time buyers? You would be much better off using a less popular item that generates only 10% One-Time buyers. The real estate this featured item occupies is very valuable, and you want to get the biggest long-term bang for the buck you can out of it by attracting multi-buyers.

Sometimes, if you find a particular item is generating a lot of One-Time buyers, you can fix it. Reasons for One-Time purchase generation may be linked to poor quality, bad instructions, shipping difficulty (item often breaks), or other physical reasons. So hunting down One-Time buyer products can be helpful to product sourcing efforts; the customer is telling you by making only one purchase the product has failed. 

If you go behind the One-Time buyer products and find a common vendor (especially a drop-ship vendor where you never see the merchandise), they may be shipping something different from what you approved. For example, the packaging may be different and substandard or the color is different from the photo you are using. For expensive items, these problems usually show up in returns analysis, but for items under $30, the problem shows up as One-Time buyers.

OK, so much for reducing One-Time buyers as a fix. But what if you are getting all kinds of pressure to convert them anyway? All I can say is you are going to have one heck of a long road to walk, so be prepared. The best way to go about it is through a qualifying test. Don't try to second guess it, let the customer and the data show you the way. Customers are self-selecting One-Time buyer status, and it is best to let them self-select a solution, if there is one. Let the behavior play out and look for commonality in the customer.

Take a random sample of your One-Time buyers (or all of them, if there are under 5,000 and you can afford it) and mail them a good solid offer, say 20% off. Anything less and you will get weak response. You might as well "load it up" for a test - if they don't respond at 20%, they aren't going to respond at 10%. 
Then look at the responders and see if you can find any commonality. Did they buy the same first item or category? Come to you from the same offer or media? Make the first purchase a certain number of days ago? Have customer service problems? Return their first purchase?

You may find a couple of segments, usually quite small, where you can create profitable One-Time buyer programs. Then it becomes a question of scale - is it worth all the time, effort, and resources required to reduce One-Time buyers by 1/4 %? You would be better off creating less of them in the first place by reducing the factors creating them.

Generally, the more Recent the One-Timers are, the more likely they are to respond. If you don't know what Recency is or how it affects buyer behavior, see the article Use Recency Metrics to Make More Money on Your Promotions.

Even though the more Recent One-Timers are most likely to respond, the response rate may not be high enough to pay the cost of mailing and discounting to them. You have to get right on them, immediately after the first purchase. This approach causes a problem of a different kind - subsidy costs. Subsidy costs are the discounts given to customers who would have bought anyway, without a discount. If you discount a second purchase to every new buyer, you will undoubtedly be handing out discounts to people who would have bought a second time anyway, and this can ruin your margins. A Recency approach can also create discount proneness (customer will not buy unless they get a discount). You end up teaching them early on to wait for your next offer, which is not a good thing (trust me, I've seen some very bad discount proneness cases, and it is not a pretty sight).

So it's a very tricky proposition to create a One-Time buyer program like this; you have to be on top of measuring the true ROI. A high response rate could mean you are simply giving the store away to people who would have become multi-buyers anyway. If you don't know how to create and use control groups to measure the subsidy cost and discount proneness, you would be better off not doing this kind of Recency-based One-Timer program at all. 

So, no easy answers in One-Time buyer land, are there? If you wait too long, they will ignore you. If you act too quickly, you could ruin your margins. The best answer is really this: focus your budget on multi-buyers, and determine how to reduce the number of One-Timers you create in the first place. You will grow your profitability without any increase in your marketing spending.
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Jim Novo is an interactive retailing expert with over 15 years of experience generating high ROI customer marketing programs for Home Shopping Network, CBS/SportsLine, MBNA, and many others. Jim writes for national magazines, is a speaker at industry conferences, and has written a book on using customer data to create high ROI customer marketing programs. More "How To" customer marketing articles can be found on his website: http://www.jimnovo.com 
 

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