Hillstrom's Loyalty: Measuring Why It Is So Hard To Grow a Business via Loyal Customers

In e-commerce, the largest brands personalize every single home page and landing page the customer sees. Merchandise is tailored to the customer based on what the customer previously purchased, what the customer previously viewed online, and where else the customer visits online. It is common to see 20% productivity gains

logistic regression model to calculate the probability of a customer purchasing again in the next twelve months. I calculate square root of months since last purchase,

if you are like most companies, you possess customers who have less than a 40% chance of purchasing again in the next twelve months. Your success has nothing to do with increasing customer loyalty. Your success has everything to do with finding new/infrequent buyers at a low cost.

“Merchandise Productivity” is simply defined as selling merchandise that customers like more than the merchandise previously sold. The secret to business is embedded within merchandise productivity. When your merchandising team finds items that customers like better this year than last year, sales grow,

The demand generated by existing customers is what I call “organic demand”. Demand is generated because the customer loves the combination of merchandise and value proposition. It is the most profitable demand a business can generate.

The key, then, is to simply measure your annual repurchase rate. Identify every customer who purchased in 2014, and simply measure the percentage of customers who purchase again during 2015.