Is Customer Acquisition Worth it During the Holidays?
Zeroing in on holiday shopping tendencies is a powerful tool for retailers as they consider their seasonal strategies. In order to inform the strategic budget division between acquisition and retention, the Optimove data lab crunched behavioral and spending patterns from a database of over 200 million holiday retail transactions, made over a period of three consecutive years.
An Upsurge of New Customers
To determine the origin of the sizeable rise in customer spend during the holidays, we looked at how many more transactions e-tailers experienced during the holiday season (Thanksgiving to New Year’s Eve) from new vs. repeat customers. The numbers demonstrate that compared to the monthly average of the rest of the year, e-tailers experienced 50 percent more transactions by new customers, while repeat customers (those who had made previous purchases with the brand before the holiday period), made only 17 percent more purchases during the holiday period as compared to their rest-of-year monthly average.
In other words, your loyal customers are indeed spending more money during the holidays — just not with you. They're new customers for other brands.
New … But Weaker
The question must be asked: What's the relative value of new customers vs. repeat customers? We looked at transaction amounts, number of items per order and survival rates (i.e., the probability that a customer will purchase again from the brand within a year). According to all metrics, even though brands receive more business from new customers during the holiday season, business from repeat customers is actually much more valuable.
For starters, repeat customers buy more in the short run. Repeat customers’ transaction amounts came in 30 percent higher than new customers’, while the number of items purchased was 40 percent higher. The distribution of transactions according to transaction amounts clearly demonstrates that new customers tend to purchase at the lower end of the spectrum, whereas repeat customers’ relative majority is more pronounced at the high end (see the chart below for more detail).
Repeat customers are also better assets for retailers in the long run. During the year following the holidays, the number of repeat shoppers who made at least one more purchase with the brand was 160 percent higher than that of new customers.
The total rise in transaction levels for online retailers during the holiday period is largely created by new business. However, new shoppers pan out as much weaker assets for online retailers, with decidedly lower transaction amounts and number of items bought, and a lower tendency to become repeat customers themselves
Retain and Gain
During the holidays, retailers are waging a war for the wallet share of new shoppers, but Optimove’s research suggests that their victory may be hollow. Acquisition of one-time shoppers is extremely costly, especially around the holiday season, when slashing prices is a major acquisition strategy and conversion of first-time holiday customers into repeat customers is pointedly less successful.
Online retailers need to think hard about tapping into their existing customer base, where the greatest potential is found. In the run for the 2016 holiday season, e-tailers should use their data to determine the best way to increase both spend levels and transaction frequency for existing customers. Giving your loyal customers incentives to make purchases during the holiday season may strengthen their bond with the brand and prove to be not only an effective holiday strategy, but a long-term strategy that keeps on giving long after the last ornament is off the tree.
Pini Yakuel is the founder and CEO of Optimove, provider of the Customer Marketing Cloud, which empowers marketers to maximize their customers’ value.