[MUSIC PLAYING] DREW SANOCKI: Welcome to module 2, lesson 3. In this lesson, I'm going to tear down a campaign that worked well for us at Karmaloop in increasing customer purchase frequency. You see, at Karmaloop, we suffered from the one-time buyer problem. 85% of our customers bought once, never bought again after buying a really low margin item. Converting some of them into repeat buyers represented a significant opportunity to juice cash flow. With our 100-day time frame, we knew there wasn't a whole lot we could do on our merchandising or customer experience side of things.
We were losing a half million dollars per month, so we needed cash ASAP. What we decided to do was to run what I call a one-two punch campaign. One-two punch campaigns are designed to convert your F1s-- your customers who have a frequency of one, who have purchased once-- into F2s. The way we do this is by first identifying standard F2 behavior, and then second, implementing marketing communications that kind of grease the skids, that encourage that behavior to all F1s.
Here are some examples of what we want. So you look at your customer data, and you figure out that all your past F2s bought the same item in both their first and second purchases. Then you also notice the second purchase happened on an average 30 days after the initial purchase. Then in your one-two punch campaign, you want to market the same item an F1 customer initially purchases. 30 days after that initial purchase. Easy, right?
So your F2s bought a related item 50 days after their initial purchase. Then going forward, you want to market that related item to all F1s at the 50-day mark. At Karmaloop, I examined hundreds of thousands of F2s. We noticed that most of these were brand reorderers. In other words, their first order from us was for a brand like Undefeated, then their second order was from another item from the same brand.
The time between the first and second purchase, or latency, averaged 30 days. So a one-two punch campaign look like this. At day zero, a new customer made his first purchase. That purchase consisted of a brand like Undefeated. At day 30, we market to that customer featuring another Undefeated item. We present that item at full margin without a discount. If our F1 customer buys at full margin, great.
We're high-fiving. We're giving bro-hugs around the office. No further one-two punch messaging is required. If he does not buy by day 40, however, we send a 10% off coupon, day 50, 15% off, day 60, 20% off. That's the basic one-two punch, and it killed it for us. One single email sequence generated a 15% lift in our customer frequency, RF, that went straight to the top line.
Because it was achieved cheaply through email, it went straight to the bottom line, too. Now, when you look at that one-two punch campaign, you might be asking a couple of questions. First, Drew, what's the deal with the discounts? What's the deal with that ladder? Why'd you go full margin and then promotional? I do this because most businesses carry a subsidy cost. A subsidy cost is a hidden cost that a retailer bears when the retailer creates an incentive to buy and the customer would have bought anyway.
In other words, I just moved. I know I need some new pots and pans, so I head to Bed Bath & Beyond. On the way to the door, I check my mail and get the 20% off coupon in my mailbox. I, of course, take it and use it. But I would have purchased anyway, so that 20% represents a hidden cost that Bed Bath & Beyond paid to incentivize a transaction when I would have bought anyway. They didn't have to spend those dollars. Well, Karmaloop had subsidy costs coming out of its ears.
For three years, as bankruptcy loomed, every single email they sent out to every customer had 20% to 40% off coupons on it, and yet the historical customer data was telling me that some customers would have bought regardless of the offer. You see, when the data shows the average latency between first and second purchase is 30 days, it means that for every day before day 30, a one-time buyer, an F1, is still likely to buy again at full margin.
To that customer, I don't want to show him discounts. I just want to show more things to buy at full margin. It's only after 30 days from the initial purchase where that customer is becoming less and less likely to ever buy again. This is where I want to spend my promotional dollars to incentivize a second transaction. The second question you might have is, Drew, why do we increase the discounts over time when we just send them all out at once?
Well, ascending promotions like that's called a discount ladder. What the discount ladder does is preserve your promotional dollars. It reduces your subsidy costs. If the customer takes the first one, he or she falls out of the sequence, and you never have to send successive offers. A lot of you might not want to discount, so keep in mind here a couple things. First, these discounts are not public on your site. They're really only one to one between you and one customer who is eligible for them.
The second thing is you don't have to discount in your discount ladder. Any offer of ascending value will work here-- free gift with purchase, free shipping, expedited shipping, I don't know, free consultation call. Really, all you want to do is ascend the ladder. And if you want to dive more into this promotional concept, you've got a big podcast about it at nerdmarketing.com/1. It's a great way to incentivize user behavior and preserve your promotional dollars at the same time.
One final tip on one-two punch campaigns. They don't have to be exclusively email campaigns. They're easy to set up in today's email providers, and it's certainly where you should start. But take your segments and offers there, and then push them onsite using an overlay tool like Justuno or OptinMonster, push them to Facebook via custom audiences. Both Klaviyo and Mailchimp now can push information from the email system to Facebook.
You can even push them offline via traditional postcards. So one of my favorite apps now for Shopify is called touchcard, and it enables you to send physical postcards from Shopify. So the big idea is that it's getting easier and easier to get the right offer to the right customer at the right time, irrespective of whether that customer opens his or her email, goes back to your site, logs into Facebook, or checks his or her mailbox.
So that's the one-two punch campaign. Coming up in the next module, I'm going to talk about increasing average order value. To recap what we talked about in this lesson, use the one-two punch campaign to transform your one time buyers into repeat buyers. Use discount ladders to reduce your subsidy costs. Put them both together, and you have a great basic retention campaign.
