It could be posited as a Zen koan: When do existing customers tell you to take action? Answer: When they don’t tell you anything. For Geerlings & Wade, listening when customers stopped purchasing alerted the wine cataloger that it had to step up marketing efforts.
Analysis of customer spending revealed that a customer’s third order was crucial: Forty percent of those making it go on to have long-term relationships with the Canton, MA cataloger. “If we can get that third purchase there is a high likelihood they will continue purchasing for three or four years,” says Mike LaFrance, director of sales and marketing for Geerlings & Wade. Getting them past the third can result in between eight and 15 additional orders per customer.
The timing of the third order is important as well. Using LifeTime, a program developed by Boston-based software maker Verbind, Geerlings & Wade also found most customers who continue to buy place their third order within 90 days of the second.
“If we know we are losing them after the second buy, after the third month I can send them a special offer,” says Jay Essa, president of Geerlings & Wade.
LifeTime will alert Geerlings & Wade’s marketing department to their potential attrition. “Once they are in the habit, they are yours,” says Essa.
While results for the recently installed system are not yet in, Geerlings & Wade anticipates recovered sales from 32,000 individuals who had a history of making purchases every 90 days, but had not done so within 90 days of the analysis. Their “velocity” – or the rate at which they made purchases – had slowed. With an estimated revenue of $95 per order, their inaction could result in a “loss” of $3 million in sales – and some of those customers might not purchase again. The company is planning a series of marketing initiatives aimed at stimulating activity among these customers.
Velocity can also help capture share of wallet. If the average time between orders is decreasing, LifeTime identifies the change in behavior and allows Geerlings & Wade to reward it. Likewise, a lengthening between average time of purchase causes the company to take counteractive measures.
Verbind, which runs the LifeTime analysis for Geerlings & Wade, has found that increasing the frequency of purchase does not hurt the size of each purchase. Rather, it indicates that a customer is buying more wine from Geerlings and Wade, and less from neighborhood stores.
LifeTime also can track incremental changes in order composition. If a longtime white wine customer – who would have been targeted only with white wine solicitations – begins to order red, LifeTime flags this and brings it to the marketing department’s attention. “The wine business is a business in which tastes change and evolve,” says Jeffrey C. Caplan, Verbind’s vice president of marketing and business development. “If you try to market based on what customers have done in the past, you don’t capture evolving palates.”
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