Most of the classical KPIs that are used by marketers and analysts, and are recommended by industry experts, are basically snapshots. They only look at a small timeframe and don’t consider customer or visitor types or even their development. Typically, when we talk about customer journey it means a time range between the first marketing contact and a conversion – sometimes even more reduced by limitations like 30 days post click or post view. But in the same way as no business can survive without a long-term strategy also no good reporting and analytics should exclude long-term effects and developments. In the worst scenario all classical KPIs show a good performance and still revenue stagnates or even sinks. And you would be surprised how often exactly that is happening.
That is why in our new Customer Insights Dashboards for Mapp Intelligence customer analytics and customer development play a crucial role and you will find KPIs with a long-term perspective in several of our dashboards. Mapp has good reasons for this, and I want to share with you one of the most remarkable customer cases.
Shortly after we developed our customer development KPIs, we got the chance to apply them to a customer case – and prove the insights you can get from them. Unfortunately, we need to keep the name of customer confidential, as well as their data. So, I will show you the case in an anonymized way, which is still valuable in demonstrating the importance of customer analytics (more than any fictional example ever could be).
Our customer in the retail industry had a main concern about shrinking revenue and market share, despite major efforts and investments in buying new traffic and nurturing existing customers.
The following graphs show the development of KPIs in a time range of 2 years. The percentages in the small boxes show the average of the yearly comparison on a monthly basis. The color coding represents a rating of the development from green (no negative or positive development) to red (negative development).
Looking at the numbers above, they had a reduction in revenue of 12% within one year. The cause was a combination of less orders and less average order value. The corrective actions (and related analyses) were very much focused on the usual: improving CTR and CPO performance of the targeted marketing channels, optimizing onsite CR, and analyzing product popularity to increase up-selling and cross-selling. The challenge was that at least two KPIs they looked at were showing no significant drop and improvement.
Their efforts in new visitors and conversion rates seemed to be successful. Other typical marketing metrics were ok too. Onsite user behavior was fine. On the surface, everyone did a good job – but the most important KPI – revenue – was in free fall.
Applying Customer Analytics
As a marketer or analyst, you need clear indications outside the usual range of fluctuation – proper actionable insights. When Mapp checked the customer development KPIs, we already had a suspicion but still were surprised by the results.
First, we looked at the Customer Conversion Ratewhich shows the relation between new customers and new visitors. The website was generating new visitors and we wanted to see what happened with them. A reduction by 13% was a first significant result. The (expensive) efforts in getting new visitors were obviously fizzling out, since they had no impact on the revenue – quite the opposite.
The typical retailer does not generate profit out of one-time buyers. Two or even more orders are required to justify the marketing investment (Customer Acquisition Costs vs. Customer Lifetime Value). Therefore, our next step was to check that performance… and it got even worse.
The Repeated Order Rateshows the relation between the first and the second order (How many customers repeat purchase?). As you can see, within one year the share of new customers who bought again (and become profitable) sank by 17% and the time between orders went up by 23% – resulting in not only less orders but also in a negative trend from a long-term perspective.
Since the main concern was the revenue, the next KPI we checked was the Order Value Increase– the relation between the order values of the first and the second order. It showed a very negative development, the relation went from around 6%+ at the beginning of the 2-year period to nearly 0 at the end. This means while in the past customers generated 6% more revenue, if they bought again, they stagnated now with a strong tendency towards even reducing their basket size in returning orders. For a business which relies on customer loyalty this is an alarming signal.
So What Happened?
While the standard measurements showed some trends but gave no clear insights, customer development KPIs were pretty clear. Here’s the scenario Mapp could identify:
Due to investments in prospecting and branding, the company was generating new traffic for the website. The share of this new traffic even went up slightly in the 2-year time frame.
But the ability to convert new users into new customers was declining. In other words, the positive effect of new users turned into quite the opposite.
From the new customers, the retailer generated a strongly reduced share of contacts who bought a second time (or more often). This meant that the company was not just losing performance and revenue. More importantly, the company was losing the opportunity of turning traffic into profit.
Moreover, even if customers bought again, they were spending less money than before.
This whole trend cumulated into reduced revenue while the typical daily performance measurements around the orders showed no big decline or other negative effects.
While investing money in new traffic and nurturing old customers, they missed the important group in between – users on the way of becoming loyal customers – and with that gambled away not just current revenue but their future customer basis.
Working in a fast-moving business and under the influence of short-term performance KPIs, it is not so easy to keep an eye on long-term developments. Typical web analytics tools do not provide such KPIs for the long-term perspective, while a CRM might be long-term oriented but not give the full picture from new users becoming loyal customers. Mapp provides Customer Insights Dashboards, so that companies can easily gain a long-term perspective based on actionable insights.
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This article was first published by MAPP.com. Permission to use has been granted by the publisher.