What do your customers want? In fashion that’s a hard question to answer. If you sell a shirt to 100 different people, you can be relatively confident it was purchased for 100 different reasons.
That makes assortment planning and retention marketing really difficult…or does it? I’ve analyzed the raw transaction data of dozens of fashion brands, and there are quite a few recurring patterns.
But first, I want to thank this week's sponsor: Segments Analytics.
Segments Analytics integrates with your Shopify store and finds you actionable, profitable customer segments instantly, then lets you push those segments to your marketing channels seamlessly.
If you design your acquisition, retention and merchandising strategies around these behaviors, growth will be a lot faster and a lot less painful.
Rule 1: 1st Purchase Indicates Future Behavior
The contents of the customer’s first purchase is highly indicative of their future buying preferences and LTV potential. The first purchase indicates what product(s) they care about and what they feel is a reasonable price to pay for those products.
If you want to guide your brand in a certain direction–category dominance, singular aesthetic, margin profile–you must focus on winning first purchases that align with that direction.
Rule 2: VIPs Do More Of Everything
The customers that become your VIPs–the top 10% in net sales and gross margin–do more of everything.
They purchase multiple units from multiple categories. They buy from the higher end of your AUR range. Average AOV and UPT are higher. They make more frequent purchases than the average customer.
TL;DR: VIPs are usually rich people. They simply have more money to spend.
Instead of trying to turn every customer into a VIP, focus on identifying these folks on their first purchase and doing everything you can to keep them from lapsing.
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“Segmentation” and “personalization” are big buzzwords in the retention marketing space.
But there isn’t nearly as much talk about “execution” because…executing these strategies can be really challenging.
3 ways that Segments Analytics makes personalization actionable (and profitable):
- It helps you identify the biggest money-making opportunities in your customer file.
- It provides purchase data insights that help you market to your customers better.
- It lets you push audiences seamlessly to Meta, Klaviyo and your other key marketing channels.
ILIA Beauty used Segments Analytics to personalize post-purchase email marketing and lift customer retention rates for the entire business.
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Rule 3: Customers Rarely Trade Up In Price
Customers rarely shop outside the price band or promo band of their first purchase. 70%+ of LTV will occur within those first purchase bands.
What that means in practice: if you acquire a customer during a 60% off end of season sale it’s highly unlikely that they’ll ever shop at full price.
The greater the absolute dollar value distance between the promo price and your full price, the less likely the customer is to shop at full price.
So a customer you acquire selling a $100 item for 25% off is more likely to shop at full price than a customer you acquire selling a $750 item for 60% off. “First order offers” become a less effective acquisition tactic as you move up the price ladder.
Rule 4: Loyalty Happens Between Purchase 3-5
“Loyalty” is a buzzword that is rarely defined in concrete terms. I define loyalty as the moment when the customer’s likelihood of making a subsequent purchase is greater than 50%.
For most brands, on average, this happens some time between order #3 and order #5. Every customer has their own unique propensity to repeat, and some “big data” solutions will model this for you at the customer level, but using averages is something that all brands can do.
Of every 100 new customers you acquire, only 3-8 will make it to loyalty. The rest will churn out before they reach the 3rd-5th purchase.
For that reason, marketing programs that focus on driving more spend from loyal customers are a waste of time for smaller brands–the audience is too small to be meaningful.
Rule 5: The Path To Loyalty Is Paved With Repetition
This is the typical path to loyalty for a fashion brand:
- Purchase 1: buy hero product A from category A
- Purchase 2: buy hero product A, maybe in another color
- Purchase 3: buy hero product A, maybe in another color/length + another product from category A
- Purchase 4: buy some permutation of hero product A + a product from category B
People buy more of what they bought before. You need consistency in your product assortment to support this path to loyalty.
For most brands, the progression from purchase #1 to purchase #4 takes between nine and 12 months. The higher your price point, the longer it takes. If you don’t have a “Product A” available on site for all 12 of those months, your potentially loyal customers are more likely to churn.
Rule 6: Recency Is Critical To LTV
For the average fashion brand, only 25 of every 100 customers you acquire will ever make a repeat purchase.
50% of those repeat buyers will make their second purchase within three to four months of the first purchase. 25% of those repeat buyers will make their second purchase in less than 30 days from the first.
Recency is critical to LTV. It’s hard to over-market to your customers in the first 30 days post-purchase as long as the messages are relevant.
Rule 7: After 3 Years, Existing Customers Become “New” Again
Cliche but true: it’s cheaper to win a purchase from an existing customer than a new one. There is one exception to this rule though: if a customer’s last purchase from you was more than three years ago, they’re essentially “new” again.
This means that you’ll have to spend on par with your acquisition efforts to reactivate the customer. They stopped buying with you for a reason–a bad experience, a change in life circumstances, or a change in your merchandising strategy that no longer aligns with their preferences.
Lots of established brands think that a big customer file is “untapped riches”. But that isn’t true.
Your first reactivation campaign might drive a bump in sales, but after that, you won’t be able to reactivate many more incremental buyers. Unless you spend on par with your acquisition efforts, which defeats the point for most.
Rule 8: Your Top Selling Category Will Always Have Lower LTV
A popular analysis: average LTV by category of first purchase. What you’ll often find: “sleeper” categories have higher average LTV than your “hero” category.
There is a reason why this happens: the average LTV of your hero category is diluted by a higher volume of casual buyers, who are less likely to repeat.
It’s easier to convert folks with your hero category. SILIBI shoppers are more likely to enter via the hero category, so average repeat rates are lower.
You can still try to guide acquisition towards your higher LTV “sleeper” categories, but your total upside potential will probably be lower than your hero category.
Rule 9: Be Careful How You “Comp” Hot Items
“Hot Items” are best selling products that drive a lot more consumer interest and conversions than a brand’s historical average.
This usually happens because the product fits perfectly into a macro trend, because the product “goes viral” in some way, or both of the above.
Sometimes it happens because the product really is better than everything else on the market, it gets a word of mouth reputation, and then suddenly explodes in the media.
“Hot Items” and the buzz around them serve as cheap customer acquisition for your brand. But hot item buyers are less educated on/bought into your brand, so they’re less likely to repeat purchase.
Hot items boost the top line but dilute LTV. Be careful how you comp these sales, because the trend eventually dies out.
Hill House Home is a great example of a brand who built a strong business off a “hot item” (the nap dress) by building an expanded assortment of related, relevant products.
Next week paid members are getting my full customer lifecycle playbook, aka how I translate these 9 rules into marketing campaigns. Click here to become a member.