Commentary

Why a retail 'second sale' is more critical than a new customer acquisition

Chris H. Petersen explains why acquiring a retail sale today does not ensure retention as second-time retail buyers are actually more valuable and more profitable. Yet many retailers still fail to measure the KPIs of 'the second sale.'

Photo by iStock.com

September 27, 2018 by Chris Petersen — Owner, IMS

Retail has a legacy of focusing on immediate results. Historically, the cash register drove the retailers' core metrics. The results that counted were the POS tickets and total sales at the end of the day. The better retailers measured store traffic and calculated the conversion rates. Even with the launch of ecommerce, core metrics still focused on traffic, acquiring customers, conversion and AOV (average order volume).

However, studies repeatedly show that the second time buyers are more valuable and more profitable. Why do so many retailers focus so heavily on the first purchase and fail to measure the KPIs of 'the second sale'?

Some sales are more important — the second sale is a critical KPI

Retail marketing company Bluecore analyzed purchases from 16 apparel companies. The results are not necessarily shocking, but they underscore the critical importance and dynamics of the second sale:

Second time buyers are 130 percent more valuable.
Although customer value increases with each purchase, the biggest jump in value is between the first and second purchase.
60 percent of the second purchases occur within 100 days of the first.
After 100 days the chances of a second purchase drop below 10 percent.

Yet, Bluecore also found 80 percent of post-purchase messaging from the 16 apparel companies studied focused on acquiring new customers. Why do so many retailers focus on first time buyers?

Why so many retailers focus on acquisition and miss retention

Traditional retail has a legacy of "mass marketing and mass media." Marketing's goal was reach and frequency to acquire customers and get them to the store. Traditional systems measured POS sales, market basket and potentially conversion rates. Quite simply, the focus, measurement and metrics were on product sales today, not customer relationships.

Rest assured that today's e-commerce giants like Amazon and Walmart understand the potential of the second sales, and how to leverage them. E-commerce systems were designed from the bottom up to be individual customer focused. They track when you visit, what you view and what you purchase. Then e-commerce AI kicks in to repeat message first time buyers for add on sales and second purchases, while tracking all of the corresponding data from the messages, offers and future sales.

Traditional bricks and mortar retailers often miss the second sale because:

Legacy systems are focused on sales transactions, not customers.
Data resides in silos and is difficult to access.
Metrics are focused on transactions and year-over-year results, not relationships.
Many lack integrated CRM systems to market and message to customers.

The second sale questions every retailer needs to be asking and tracking

The future of retail and profitability lies in retention and optimizing relationships. In order to do that, retailers must think and analyze from a customer relationship perspective, not transaction sales. This will require CRM and customer tracking that enables retailers to analyze:

What categories and products did the customer shop?
What category did the customer make the second purchase from?
How long was it before they made the second purchase?
What messages did they receive, and what impact did they have on conversion?
What categories and products were the second purchase from?
How does that compare to other customers purchasing similar products?
What is the "basket of core products" that create the lifetime value for the customer?

Having the ability to answer questions about individual customers creates a path to retention and profitable lifetime value relationships.

The single greatest asset in retail today is omnichannel CRM

Future success requires more than sales transactions. It requires winning second sales that build a trend to relationships. Amazon is a master at using data to leverage multiple sales and building relationships through Prime.

However, traditional bricks and mortar retailers like Nordstrom's have employed sales talent to build relationships with customers that last for decades. The critical key is CRM. Increasingly that engagement needs to be the point of interface where the customer chooses to engage.

There is no single model for success. However, measuring and managing the second sale is a critical metric for changing the paradigm from acquisitions to retention.