NRF 2017: The Analytics Playbook of High Growth Merchants

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With the holiday sales season behind us, leading merchants are now using data to look back on the performance of their holiday strategies. These data-savvy retailers know how to squeeze the most valuable insights from their many disparate data sources, providing powerful insights into acquiring new customers, driving repeat purchases, and increasing customer lifetime value.

At the NRF Big Show this week, I joined forces with Magento client Sean Fisher, Director of eCommerce at the leading kitchen, bath, and home product retailer Signature Hardware, to map out the Analytics Playbook of High-Growth Merchants.

Sean and I shared data from Magento Business Intelligence’s Holiday Benchmark Report, as well as the customer insights and innovative marketing strategies that have helped propel Signature Hardware to the number 222 spot on the Internet Retailer Top 500 merchants list.

In the session, we delved into three key performance indicators ­– customer acquisition, customer retention, and customer lifetime value – and discussed how they can be applied across a variety of industry types. Here are some of the takeaways:

Customer Acquisition

We reviewed customer acquisition data from the top 25 percent of merchants and found that, by the end of their second year, these top performers are acquiring five times more customers each month than their counterparts. Moreover, this margin of leadership grows exponentially over time. By the end of the third year of their life, the top 25 percent have a customer base that is 2.5 times larger than their peers in the second quartile, and over 10x larger than the rest of the pack.

In reality, however, many high-performing businesses don’t follow this same steady growth pattern. Signature Hardware is a perfect example. While they ended their third year on par with other top performers, their growth started out much more slow and linear. It wasn’t until about halfway through their second year of operations that Signature Hardware experienced a rapid spike in growth.

This was no surprise to the Signature Hardware team, who knew the unique characteristics of their industry and its customers. After all, when customers buy bathtubs and vanities that can cost thousands of dollars per unit, buying behaviors are quite different than in more traditional online retail verticals. There is a longer purchase consideration cycle for customers in this category, along with a larger delay between purchases, which led to a longer delay before any snowball effects could kick their growth into high gear.

Signature Hardware was able to find strength in these unique customer characteristics, closely tracking the data on what new customers were buying and how it impacted their customer retention.

Customer Retention

For most merchants, 68 percent of customers will never make a repeat purchase. But for high-growth businesses, our data shows there is often more revenue coming from repeat customers than new ones. This trend is typically driven by strong customer loyalty and data-driven remarketing to the existing customer base.

Because many of their customers purchase high-value items for rare home improvement projects, Signature Hardware is not the kind of business you would expect to have a high repeat purchase rate.  This proves true in the data, with the average Signature Hardware customer making fewer repeat purchases than the average customer at other retailers. However, if you segment the data to only those customers making a first purchase of over $900, the repeat purchase rate jumps dramatically.

Knowing this has provided Signature hardware with a powerful perspective on how to invest in its growth and increase the proportion of customers who are coming back to buy more.

Customer Lifetime Value

Top merchants acquire more customers, have a higher average cart size, and drive more customers back to make repeat purchases. All of these factors combine to impact one key metric: Customer Lifetime Value (CLV). Customer segmentation can help determine the CLV of specific cohorts of customers, informing smarter business actions and strategies.

Signature Hardware created CLV models by vertical that allowed them to smartly invest their marketing dollars in categories that attracted high-CLV customers. They also employed creative merchandising to increase cart size and promote matching pieces that tended to sell well with the items already in a customer’s cart.  

By segmenting their data and identifying the best KPI’s for their industry and business model, Signature Hardware developed a truly data-driven strategy for growing Customer Lifetime Value.

The Playbook

The fastest-growing merchants in the world have three things in common: They acquire customers in high volumes, they bring these customers back for repeat purchases, and they employ strategies to increase Customer Lifetime Value. To drive these metrics for your business, the key is instrumenting your data, understanding your customer segments, and pulling the right levers to keep your audience engaged and coming back for more.