The Lifecycle Stages of an Online ShopperPosted in Customer Retention, E-Commerce, Data Analysis, Personalization on 30 July 2015 by:
To forge stronger relationships with their customers, online retailers must understand the distinct lifecycle stages that shoppers go through. Whether they’re just starting to browse a new site or they’ve been loyal customers for years, shoppers generate much valuable data that marketers can leverage to develop customer marketing campaigns that effectively engage, monetize and retain each distinct shopper persona.
Though different types of retailers will observe varied customer behavior patterns, all retailers must employ strategic customer marketing campaigns to effectively engage, monetize and retain their distinct customer personas.
In this post, we'll take a quick look at the five primary lifecycle stages of the online shopper, shed light on what makes these shoppers tick and explain how e-retailers can conduct smarter, more effective customer marketing campaigns.
Lifecycle Stage #1: The New Browser
Those potential customers who recently created an account or registered for your newsletter, but have yet to make any purchases.
Our data shows that 80% of all shoppers make their first purchase with an online retailer the same day they register for an account. After that, there’s a steep decline. Over 7% of shoppers will make their first purchase within a week of registering, but after that your chances of converting them drop significantly, as shown in the following chart.
As a retailer, your objective during this period is obviously to get the shopper to become a customer by making their first purchase within seven days. It’s important to get them to do so quickly—as in, “right away,” if at all possible. Leverage the data you have— referral source, initial product interest, other browsing data and more—to deliver targeted, custom campaigns and promotions on popular items that have proven to attract other, similar shoppers. Of course, this applies to the 20% or so of browsers who provided their email address, but didn’t make a purchase right away (for example, customers who signed up for your newsletter or abandoned their cart before completing a purchase).
Lifecycle Stage #2: The New Customer
Those customers who have completed their first purchase on your site.
More than half of all New Customers will never make a second purchase on your site. That’s the bad news. The good news is that most of the customers who make a second purchase will go on to make a third, and that their chances of becoming a loyal customer continues to climb with each subsequent purchase.
Also, the likelihood of them making more purchases in the future goes up based on the number of items they bought during their first order: customers who buy six or more items with their first purchase are more than twice as likely to make a second purchase as customers who only buy one item.
Knowing these facts, your goals should be to (1) get New Customers to make a second purchase, even if it’s an inexpensive item or a loss-leader, because you’ll increase the chances of them becoming loyal customers, and (2) try to increase the number of items they order during their first purchase, perhaps by recommending related items or offering special discounts on impulse items.
Lifecycle Stage #3: The Active Customer
Those customers who have made multiple purchases, and are not considered as churned due to a lengthy period of inactivity (see more about determining when a customer has churned, below).
You should further segment your Active Customers using RFM segmentation (Recency, Frequency and Monetary). This segmentation is based on a sampling that outlines the length of time since a shopper’s most recent order, the average frequency of those orders, and the total purchase amount in a given timeframe.
Once you analyze Active Customers using RFM segmentation, you’ll know who your highest-value and lowest-value customers are and other insights, such as which customers are at the greatest risk of churning. With these insights, you will be able to target those customers with relevant re-engagement campaigns.
The following chart shows a sample RFM segmentation, conducted using cluster analysis (the numbers in the chart represent averages of all customers in each cluster).
It is critical to understand the different types of Active Customers and to deliver your engagement campaigns based on their RFM profile. In the sample RFM chart below, take a look at the “Mid Tier, High Risk of Churn” group has a very high risk of churn because it’s been 33 days since their last order, yet they usually place an order every seven days. These customers would benefit from a tailored marketing campaign (such as a promotional sale or “we miss you” communication) to encourage them to re-engage.
Lifecycle Stage #4: The Churned Customer
Those Active Customers who haven’t made a purchase beyond a specified factor of the average number of days between their past orders. Using the same example as above, the “Mid Tier, High Risk of Churn” group are nearing a factor of five times their previous average duration between orders (33 ÷ 7 = 4.7), so if you use a factor of 5X, this group of customers will be considered churned in two more days.
On average, 20% of customers who made their last order between four and six months ago will reactivate within three months. However, the more time that passes, the harder it is to get a Churned Customer to re-engage, as can be seen in the following chart. Regardless of activity levels, churned customers are not necessarily completely lost and can possibly be re-engaged to the point of purchase with targeted marketing approaches.
Churned Customers can be the easiest to re-engage with proper marketing efforts, because you have detailed behavior data that can help you target them effectively, as well as a pre-existing relationship that may make it easier to get their attention (assuming they had good earlier experiences).
It is important to use the data you have to segment your Churned Customers into groups based on their level of previous activity and past shopping tendencies. Once you have segmented Churned Customers by their activity levels and specific behavior patterns, you can tailor proper contextualized campaigns to them, making it easier to re-engage them.
Lifecycle Stage #5: Reactivated Customer
Those customers who had previously churned but who have since completed a subsequent purchase, regardless of how long it’s been since their prior purchase.
Our data shows that the future value of Reactivated Customers is nearly on par with that of New Customers. Therefore, a former customer who returns to activity after a hiatus period offers similar revenue potential to that of a recently converted first-time customer. Additionally, Reactivated Customers tend to remain active at a rate that is nearly identical to that of New Customers (35% for Reactivated Customers compared to 36% for New Customers within the same time period).
However, your window of time for re-incubating these customers may be limited. In the days after they come back from having churned, it is crucial to re-engage with these customers effectively and make sure they stay active, or else you risk losing them for good. (Read our detailed post on this topic here.)
You should conduct marketing and engagement campaigns to Reactivated Customers similarly to how you would to New Customers, since the two groups exhibit similar behaviors. Give your Reactivated Customers special treatment, such as exclusive offers and bonuses, in order to maximize the lifetime value of this valuable customer segment. Just be sure to do so quickly—once they’ve reactivated, you have a limited opportunity to turn them back into active shoppers.
As you’re analyzing your customer relationships, monitor the lifecycle stages in which customers are found, and treat them accordingly. Leveraging a lifecycle-stage perspective on your customer relationships will help lead to longer relationships and higher purchase frequencies.
Regardless of a customer’s lifecycle stage, personalized customer marketing plays a key role in driving continued engagement. It is very important to further sub-segment each of these lifecycle stages in order to reveal specific customer personas within each, allowing you to communicate with your customers in the most relevant and effective ways. The result will be greater success at engaging, monetizing and retaining your customers.