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In last year’s Holiday Trends Report, we explored how the holidays stack up as a percent of total annual revenue. Unexpectedly, the months of November and December have declined in this sense over the past five years. This year, we were surprised yet again by our findings, which provide even deeper insights into the ecommerce holiday season.
For the 2016 report, we set out to look at how customers acquired during the holidays behave compared to customers acquired during non-holiday months. To do this, we analyzed performance on ecommerce metrics like Average Order Value (AOV), Customer Lifetime Value, (CLV), and lifetime number of orders. We expected to find that customers acquired during the holidays are less valuable than customers acquired in non-holiday months.
This expectation was built on some generally held assumptions: customers shopping during the holiday season aren’t buying for themselves, and therefore may not be a business’ target consumer. Because of this, they’re less likely to make another purchase at the same shop during the non-holiday months. Instead, they’ll buy a gift during the holidays, often on sale, and never return. If they do return, it won’t be until the following holiday season. Bottom line: those making purchases during the holiday aren’t your ideal customer so they’re more likely to be a once-a-year shopper.
Well, we weren’t nearly as right as we predicted. Customers acquired during the holidays do have a 13% lower lifetime value, but the full story is quite a bit more interesting. Read on for insights that just might change how you think about your year-round acquisition and retention strategies.
Retailers acquire between 29% and 59% more customers during holiday months, and that percentage is even greater for holiday-sensitive retail categories
Customer Lifetime Value
Holiday customers have a 13% lower CLV
39% of holiday shoppers that make a 2nd purchase do so in the same holiday season
Holiday-sensitive retail categories generate 24% of their annual revenue from holiday customers
Holiday shoppers have an interesting characteristic: they’re typically not buying for themselves. Often, they’re buying for people very different from themselves—different age groups, genders, and more. Because of this, logic dictates that they would be more likely to shop in stores that they wouldn’t otherwise shop in during the rest of the year. This creates opportunities for retailers to acquire new customers.
The data seems to back this up – the holidays are an incredible time for acquiring new customers. The average ecommerce business acquires 23.8% of its new customers during the holiday season. To put this into perspective, an average two-month period should bring in 16.6% of a store’s new customers.
It's easy to see this uptick visually when plotting new customer acquisition by month; November and December clock in at 29% and 59% higher than the average respectively.
One of the most interesting findings of last year’s Holiday Trends Report was that different ecommerce categories aren’t impacted by the holidays in the same way. We found that certain categories show a significantly higher impact during the holiday season than others. We call these “holiday-sensitive” and “holiday-insensitive” categories.
|Holiday-Sensitive Retail Categories||Holiday-Insensitive Retail Categories|
It’s easy to see the difference between these categories’ performance when looking at their new customer acquisition by month.
In general, these lines follow a similar trajectory. However, the amount each line fluctuates indicates its reliance on holiday customer acquisition. Holiday-sensitive industries experience a more significant uptick during the holiday season and then experience a slump during the early months of the year.
We’re now ready to answer our original question: companies in holiday-sensitive retail categories acquire 25.9% of their new customers during the holiday season. For companies in holiday-insensitive categories, that number is 22%.
Initially, we assumed that while acquisition spikes during the holiday shopping season, the newly acquired customers are worth less. We would expect to see that, due to the heavy discounts that drive many holiday acquisition strategies, these customers would have a lower order value. Pair that with less loyalty over the long-term, and you’re looking at shoppers with a significantly lower lifetime value (CLV).
Here’s how the numbers break down:
|Metric||Non-Holiday Customer||Holiday Customer||Difference|
|Number of Orders||1.88||1.75||-7.2%|
Across all metrics, holiday shoppers perform worse, but by a surprisingly low margin. If a company is showing somewhere between a 29% and 59% increase in customer acquisition during the holiday months, a 13% drop in CLV is relatively small.
Let’s break these averages down just a bit and slice the data further.
One of our favorites ways to visualize the lifetime behavior of a given set of customers is to view the number of customers who make their second, third, fourth, etc. purchases. The graph below compares holiday and non-holiday customers based on their likelihood to make a next purchase.
At each purchase count, non-holiday customers perform slightly better than holiday customers, but the differences are small.
Another way to view this story is to conduct a revenue cohort analysis. Cohort analysis is the best way to understand how two groups of customers (or cohorts) compare over time. The below chart shows the amount of revenue (indexed at one for the amount of the initial purchase) for holiday customers over the 365 days after their first purchase. Again, we’re seeing that non-holiday customers perform better, but not by a large margin.
At this point, we’ve established that shopping patterns for customers acquired during the holiday season are similar to customers acquired during non-holiday months. While slightly less valuable, they represent a significant chunk of revenue throughout the year.
And that’s what we’re going to dig into in the next section.
The holiday months bring in significantly more new customers, and those customers are worth 13% less over their first year as a customer. With that in mind, we looked at how revenue generated from this customer cohort impacts total annual revenue.
Throughout the year, holiday customers comprise 23.6% of annual revenue in holiday-sensitive retail categories; four percentage points higher than their holiday-insensitive counterparts. While this may not seem like a huge difference, it reinforces our initial findings that holiday shoppers are more valuable to retail categories that are more reliant on holiday sales. Now, we just need to determine the best timing to turn first-time holiday shoppers into repeat buyers.
At the beginning of our research, we were working under the assumption that the best time to remarket to holiday shoppers would be the next holiday season, which we’ve proved is not true. Holiday shoppers will purchase again throughout the year, but when?
What’s immediately clear from this chart is how early on in the customer lifecycle customers are making a second purchase. The probability of a customer making a second purchase is highest during the first 30 days, then falls off throughout the year. There’s a small uptick again during the following holiday season, but it’s a small opportunity compared to the earliest days after a customer is acquired.
Let’s look at repurchase patterns using a slightly different scale. The table below shows the percent of repeat customers who make a second purchase within a given time bucket.
|When Next Purchase Was Made||Percent|
|Same holiday season||38.7%|
|Following holiday season||7.2%|
|365 days +||11.7%|
39% of all repeat purchasers will make that second purchase within the same two-month holiday period; that’s an incredible opportunity. Another 42% will make a second purchase in the following 10-month off-season. Only 6% of repeat purchasers wait until the next holiday season to make their second purchase.
This behavior closely mirrors the purchasing patterns of non-holiday customers. In our Ecommerce Buyer Behavior Benchmark we found that customers spend 69% of their first year’s spend within the first 30 days.
While it feels counterintuitive to aggressively remarket to a newly-acquired customer, the data couldn’t be more clear. If you want a new holiday customer to purchase again, you need to remarket quickly, ideally before the season’s over.
The biggest takeaway from this report is that the holiday season is its own own unique acquisition strategy. Overall, shopping behaviors mirror non-holiday customers, but with some notable nuance. Customers are much easier to acquire during this time, but slightly less valuable. They’re also most likely to place a second order during the same holiday season.
This means that when a retailer is evaluating holiday acquisition spend, they should be asking the same questions asked of any promotion or channel:
While a 15% lower CLV isn’t a significant difference, when coupled with behavior like bargain-shopping, the expectation of free shipping, and high return rates, acquiring holiday customers may not be a top priority for a business. If you’re already running a low-margin business, the lower CLV might be eating away the last of your return on investment.
The best way to turn these findings into profitable insights is to run this same analysis using your own customer data. If you’d like to do that, sign up for a free trial of RJMetrics CloudBI. CloudBI is an analytics platform built for ecommerce. Connect your backend database, advertising platforms, and any other data sources you use to run your business, and CloudBI will consolidate that data into a central warehouse. Then you can build custom metrics – CLV, AOV, New Customer – that allow you to do the exact analysis you saw in this report.
RJMetrics is the analytics platform of choice for hundreds of online businesses, many of whom are ecommerce retailers. Our global customer base ranges from new ecommerce companies with less than $1 million in annual revenue to some of the fastest growing companies in the IR 500.
The analysis in this report is drawn from the anonymized data from these clients.
If you’d like to understand how you compare on these key metrics, we’d be glad to help.
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