Measuring Value: Theirs, Yours and Ours Part One of a Three Part Series


As we digest the wins and losses of Holiday 2017, we begin to look ahead toward greater success in 2018.   After all, holiday is a mere 8 months away.   We can diagnose a great deal in post-season, perspective only retrospect will allow.  And then we plan.   Delete the strategies that fell flat and accelerate the best performers.  We realign budgets so we can squeeze every ounce of efficacy out of each marketing dollar.

The best marketing plans begin with data.  When you assess your program, what is the first metric you consider?  The collective response is typically sales by campaign.   What campaigns brought in the most sales and why?  This is a necessary and useful diagnostic and the numbers don’t lie – but they may be hiding some of the most important information a business in this industry should never overlook.

What is the single, most important variable in any specialty food business?  Think on it for a minute.

If your go-to response was ‘customer’, your focus is where it should be.  It’s a huge conversation – from interest, to incentive, to sale, then to satisfaction and retention – customers are your life’s blood.  Each phase of that cycle deserves scrutiny and attention but there is an attribute that all customers have which eludes many businesses.

Value.  All customers have measurable value.  From the nominal value of a one-and-done, to an invaluable loyal buyer – understanding where your customers fall on that spectrum is the first and most important step in successful marketing.   Can you plan and market without this knowledge?  With years of experience, yes, you can.   We do it all the time, and gut is an excellent gauge when you have half a century of expertise behind you, but nothing can replace the importance of knowing your customer’s value with a thorough, data-driven study.   We call this a Lifetime Value Analysis (LTV).

We don’t always have the opportunity to perform an LTV for our clients.  Why?  It’s well outside the scope of an annual marketing program.   With thousands and thousands of data points to work with, they’re exceedingly laborious and time intensive and they cost money.   Without an immediate, attributable ROI, they’re not an easy sell.  If I had it my way, they would be compulsory every couple of years at least – the benefit is immeasurable.

If you acquire customers from multiple channels and have a limited acquisition budget, in other words – every specialty food direct-to-consumer business I have ever known, you should perform an LTV.  Sales by channel reporting will only take you so far.  It can’t tell us the value of the customers those channels bring in and their downstream marketing costs, which is paramount to the future of your business.

In the simplest terms, a LTV shows us the future value, or revenue stream, from your first-time buyer. To do this, we start with a 5-year look-back.  We look at all new buyers acquired in that year, aggregate thousands of customer records from dozens of channels and trace every order they placed from 5 years ago till present.   We then discount the cash flow each year and look at those tranches of data by source.  We can further parse results out by region, by demographic, by customer type, i.e. gift giver verses self- purchaser, or both.

This answers several very crucial questions. What channels bring in the most valuable customers and why?    How much can you afford to spend to get a new customer? Once you get that new customer, how much do you have to spend in marketing dollars to keep them?  How long does it take to re-coup that investment? When and how long can you expect that customer to be profitable?

Being invested in these answers is necessary for lasting success.    We are all feeling the burden of acquisition – more and more as Amazon takes over the world and as competition in general increases.  If you are a veteran business, look at your buyer file from ten years ago.  Likely it is filled with higher quality customers.  Analog marketing methods are notoriously more effective at bringing in more valuable buyers.   Look at your buyer file from 5 years ago.   I would guess average customer value has decreased quite a bit.  As marketing has made way for more digital efforts, almost entirely in some cases, it is interesting to look at what acquisition programs bring in customers who buy over and over again.   Much of that resides on product quality, the user experience, customer service and to some degree, promotion, but there is a strong correlation between why a customer places their very first order and what their re-buy rate looks like.

Paid search, for example.   No question paid search is a valuable tool and often provides the highest ROI for first orders – especially before you match back orders to your offline marketing campaigns (that’s a topic for another day).  With an average return of 4 to 1, it’s an excellent way to boost sales.  But here is the rub… with 100% consistency, paid search (after match back)  acquires the second lowest value customer in terms of re-buy rate of all channels.   What is the first?   If you are looking at affiliate as an acquisition tool, that would be it.  We have seen more often than not that customer loyalty is with the affiliate – not the brand.   Same thing for Amazon.

Do these programs still make sense?  Of course they do.  If your product is that good, and it resonates with the buyer, they’ll come back.  But when you are dealing with limited budgets and finite spend, we all want to put our money where it will serve the greatest purpose.   Those decisions must include a buyer’s future value.  A business built on paid search alone will likely be struggling in 5 years.

So if an LTV is the first line of defense against buyer atrophy, what’s next? The answer is two-fold. What are you doing to get that second order and how are you protecting your brand loyalty?  So much opportunity is being squandered between the first and second order.  Dick Benson, one of the greatest direct marketers of our time accurately stated that “a two time buyer is twice as likely to buy as a one-time buyer.”  If you are not spending money and time getting that second order, you better have the best paid search and the most discounted promotion schedule around because you will be churning and burning through one-time buyers year after year.

Brand loyalty should be every specialty food business’s number one goal.  Though fostering brand loyalty involves far more than strategic marketing – it is by far and away your best marketing tool.   If I’m loyal to a brand, it’s because, first and foremost, the quality of the product is top notch and consistent.  Customer experience is second and that doesn’t mean there are never problems.  Problems are an absolute, it’s the internet after all – and Fed Ex, and UPS and a host of variables in and out of our control.  Customer experience is as much about problem resolution as it is avoidance.  Ask a customer – not necessarily yours – what their best customer experience has been.   They will likely tell you a story about melted chocolate being replaced without question, or a friendly and facilitating customer service agent.  That’s a person who re-buys, and there is no better advocate than a loyal customer.  With every touch, you are either building or damaging your value.

Now that we know how to value a customer, the question quickly becomes how do your customers value you?  Do you know your Net Promotor Score?  If you don’t, you should.  We’ll tell you how in Part Two of this three part series.

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