You have to love serendipity.
I ran into two items this morning, related but unrelated:
- A post by Lauran Leavett(“Messy Mapmaker” blog) on the “Fastest Korma in the West.” It’s about using a prepackaged meal kit to make an Indian cuisine dinner.
- A post by the Wall Street Journal on how startups offering meal kits are turning off investors due to fading customer loyalty. These companies see 70% repurchases by customers initially, but that drops to 10% in just a year. Without loyalty, there’s continued expensive advertising to bring in a stream of new customers. It’s repeat business with incumbent customers that makes companies highly profitable.
Repurchase is an issue that all companies need to address. SG&A is higher selling to new clients than to existing customers. Logically, that makes senses and it’s been documented repeatedly in studies by PWC and others. It doesn’t matter whether the subject is a sandwich, a shoe, a dishwasher or a car, the logic is the same. It’s the “annuity revenue stream” from repeat customers that drives company stability and profits. When it’s there, life is good. When it’s not, life gets “interesting.”
The logic doesnt’t change with size of business. That’s why smaller companies are encouraged to adopt CRMs in order to track customer spending. Small businesses need to be aware of patterns of customer spending, especially among key accounts, and respond to changes immediately. You need to know when a change occurs, why it has occurred and what to do about it.
(Amusingly, the paragraph above could have been written about couples relationship. Except in that case, there is only one “customer” and, hopefully, you’re not so obvlious as to need fancy tools to know what’s happening.)
Large businesses have more products and more customers, making loyalty harder to track. Internal tracking may not be sufficient. Regardless of whether spending with you is stable, increasing or decreasing, you don’t know what the company is spending with your competitiors. You don’t have legal access to that data.
Market research can address the issue of repurchase intent and purchase placement. However, it’s not easy and a simple survey or focus group probably won’t cut it. Here’s why:
- Re-purchase us a function of whether customers like a product. In the consumer sphere, that means customers being able to touch or taste a product. There need to see what goes into preparation.
- Re-purchase is a function of competition. What else is in the market for the customer to consider? What new technologies are going to be out there? Decisions that occur even 3 months from now wil be based on what’s there at that time, not on what’s available today. You need to immerse customers in the future context.
- Re-purchase is a function of distribution. In food, for example, is Walmart going to carry your entire line or just 2 or 3 sku’s?
If distributors aren’t committed, you can see consumers dropping away as they get bored by limited selection.
My favorite research method is a “clinic.”
- We bring maybe 50 people into a room. We demonstrate a product, allowing them to touch and taste as appropriate. We educate them about the future — what’s going to be out there.
- We have them complete a CBC exercise in which we address interest in purchase and pricing.
- We subdivide the group into three sections
- The fence-sitters and confused
- Likely buyers
- Likely non-buyers
- We dismiss the first of these. The other two groups participate in either
- A focus group in purchase barriers
- Additional research tasks on repurchase intent.
Clinics are expensive, complicated — and worth every penny. Done well, the output is a recipe for the product manager on how to drive a product.