Hi DTC folks,

This week we talk about the forgotten longtail and the interplay between acquisition and retention.

Let's go.

Featured: Don't Underestimate the Longtail

Imagine this...

Your brand sends a flyer + coupon code by post to 50,000 customers whose next order is overdue.

You have considered everything from the customer segment to the ideal timing and the perfect offer.

Two weeks later, you measure the results:

1,000 customers (2%) reactivate their accounts, generating $100,000 in net revenue.

The question now is, is this a good result?

The campaign itself cost you $30,000 including the coupon code.

Looks good at first glance.

❗ But you haven't considered the long tail?

How many customers would have ordered in the same time period without the reactivation, even though they are overdue?

Even if the probability per customer is small, the sum of the long tail is often very large. Assuming that 1.5% of these customers would have purchased again anyway is even conservative.

This completely changes the performance of the campaign:
Instead of $100,000 in sales, we end up with only $25,000, making the entire campaign negative.

Now, you might say, "We don't send offline campaigns"

But the same effect can be applied to many other things:

Example: Email Marketing

You send a campaign to your mailing list. Klaviyo shows you an attributed revenue of $50,000 for this campaign.

The real effect of this campaign would be calculated as follows:

Since all customers received the campaigns, the first question is how many of these customers would have ordered anyway without the newsletter:

Let's assume that the share of revenue by existing customers is 50% of the daily sales (on days without a campaign).

Your daily sales are $90,000. So the sales directly attributable to the newsletter would be $50,000 - (50%*$90,000), or only $5,000.

That's a huge difference, especially when it comes to channel ROI.

It would be easy for your email provider to correctly allocate the revenue, but the truth is that they have no interest in doing so because they want to claim the maximum potential revenue for their channel.

What can we learn from this?

If we want to evaluate the effectiveness of a measure, we must first calculate the long tail that occurs anyway (and is often forgotten).

Some examples of questions to ask & validate against the longtail:

• Is a particular coupon campaign really driving incremental sales?

• How successful is my new collection or product launch?

• What is the true ROI of my marketing channel?

We know the classic application of this method from TV advertising. Since direct tracking is hardly possible, you first have to predict the background noise at the time of broadcast.

Only the delta to this background noise can be attributed to the campaign itself.

This principle must be applied to all measures where results are achieved without further action.

The price of gold has also been rising since I was born in 1986, but I have nothing to do with it 😉

Poor customer retention is often a reflection of poor customer acquisition. 👇

Far too many brands view acquisition and retention as two separate disciplines.

I see them working against each other all the time.

It gets even worse when one is outsourced and the other is not.

Misaligned goals are always the core problem.

Everyone should be working toward the same overarching goal of brand success.

And that success is ultimately characterized by maximum profit.

This requires both: lots of customers and good customers.

But the reality usually looks like this:

→ The acquisition team tries to pour as many customers as possible into the machine at the lowest possible price. CAC and ROAS of the first purchase are the only KPIs used to control the campaigns. As a result, meta is also optimized accordingly.

And who are usually the cheapest customers, the ones who are the worst.

→ The retention team, on the other hand, tries to get the second purchase by all means and bombards these bad customers with hundreds of newsletters.

The result is usually a 20%-30% repeat purchase rate, depending on the industry.

This means that 8 out of 10 customers buy once and never again.

Very few customers are ever profitable.

But believe it or not. There are fashion & beauty brands with repeat purchase rates of well over 50%. These brands can do marketing on a completely different level.

And because of this, they can afford to fish in the expensive pots with potentially higher quality customers.

What do we learn from this?

We need a feedback loop from retention to acquisition.

And that's what we do at RetentionX.

We've built this feedback channel for you:

1. Identify the characteristics of high-value customers (which products, which segments, which channels and campaigns)

2. Feed these insights back into your acquisition campaigns (with the help of our automations) and optimize by LTV.

3. Constantly track the results and combine acquisition and retention.

Industry News

❤️ Luxury fashion brand Ami Paris has re-platformed to Shopify

Parisian fashion brand AMI PARIS , led by Alexandre Mattiussi, recently re-platformed its online store to Shopify .

💇♀️ Actor Mike Colter launches children's haircare brand Niles + Chaz

Mike Colter has launched the haircare brand Niles + Chaz, designed to meet the unique hair needs of children with multi-ethnic heritage. He founded the brand with his wife and named it after their daughters Niles and Chaz.

🍎 Apple cider vinegar brand Bragg is exploring sale

Family-founded apple cider vinegar maker Bragg, which was bought by celebrities Katy Perry and Orlando Bloom and other investors in 2019, is reportedly looking for a buyer at a price north of $500 million.

🕶️ Luxury-for-good brand Grace de Monaco debuts sunglasses collection

Luxury-for-good brand Grace de Monaco has expanded its product offering with the launch of its first sunglasses collection, inspired by Princess Grace of Monaco. All profits from this collection will be donated to the Princess Grace Foundation-USA, which supports grants for talent in theater, dance, and film.

🌸 L Catterton acquires Naomi Watts' menopause brand Stripes Beauty

Consumer-focused investment firm L Catterton has teamed up with actress Naomi Watts to acquire her menopause brand Stripes Beauty for an undisclosed sum. Stripes Beauty is dedicated to normalizing discussions about menopause and the natural hormonal changes women experience as they age.

That’s it for this week!

Any questions or topics you'd like to see me cover in the future? Just shoot me a DM or an email!

Cheers,

Alex

P.S.: Don't forget to check this out 👇

Maximize your Profits per Customer with RetentionX!

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